Which Should You Choose? Debt Settlement or Debt Management
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Which Should You Choose? Debt Settlement or Debt Management


If you’re in debt and looking to get out of it, you might wonder whether you should choose a debt management plan or debt settlement. While both can help you pay off unsecured debt like credit cards, medical bills, or personal loans, both come with pros and cons—but debt settlement is riskier to your financial health.

Pros and Cons of Debt Settlement 

A debt settlement company is a third-party, for-profit organization that helps people pay off unsecured debt for less than what they owe. 

Here’s a breakdown of the pros and cons:


  • If a debt settlement company successfully gets your lender to settle, you’ll pay less than you owe, saving you money.

  • A debt settlement company may appeal to people who can’t afford to repay their loans.


  • A debt settlement company will advise you to stop paying on your loans while they negotiate with your lenders, earning you late fees and penalties.

  • Your credit score will take a significant hit.

  • Debt settlement companies charge 15%–20% of your settled debt.

  • Credit companies don’t have to settle, meaning you’ll have more debt than you started.

  • Credit companies may choose to sue you, resulting in possible garnishment of your wages. 


Pros and Cons of a Debt Management Program (DMP)

You can enroll in a debt management program through a certified credit counseling agency, which can help you pay down your unsecured debt while teaching you how to manage your finances better. 


  • Debt management programs are managed by nonprofit credit counseling agencies that are required to provide free budget counseling and financial education.

  • A counselor will work with your credit card companies to consolidate your debt into one affordable monthly payment (typically 30%–50% of what you’re currently paying each month).

  • Interest rates are often reduced to 6%–10%, sometimes more in critical situations.

  • DMPs are designed to be paid off in three to five years.

  • Repaying in full will help your credit score recover.


  • You’ll be required to pay a small fee of about $40–$75 to cover the management of your program.

  • You can’t open new credit cards while paying off your current debt.


Bottom Line

While both options for getting out of debt can help, the benefits of choosing a debt management program over debt settlement are greater. Whichever you choose, knowing your options can help you find a financially healthier you.


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