Looking for just the right way to pay off your debt?
I am assuming you already have come across terms like debt management and debt settlement and are wondering which debt clearance strategy is suitable for you? Well, there is no one size fits all solution that I know of and you have to thoroughly evaluate your financial situation to come to any sort of conclusion.
Debt management and debt settlement are both powerful and legal ways to clear your debt. Whether you want to be free three-four years later or today itself is your choice. This is one area where I can say that the more patient you are and the better financial decision you will make. Let’s dive in and see how each of these individual debt clearance plans work.
What is Debt Management?
Debt management is for those who lack the discipline to repay their credit card, mortgage, or whatever debt they have acquired over time. To apply for a debt management plan, you have to approach a nonprofit credit counseling agency who will talk to your creditors and come up with a solution for your financial problems.
It’s possible that not having accountability is the reason behind you failing to repay the borrowed money in time and with some support from the credit counseling agency you will be able to become debt-free within the next 2-3 years. Moreover, you don’t have to worry about acquiring even more debt to pay off the borrowed money. A credit counseling agency is a non-profit organization and only charges $20-30 per month.
What is Debt Settlement?
Debt settlement is a debt clearance strategy in which an agency tries to lower your total debt by negotiating with your creditors. This might seem a bit shady to some people because your creditors are forced to settle for a sum lower than your total debt– which you will pay all at once.
There are no monthly installments or higher interest rates involved in the debt settlement plan, all you have to do is pay a certain percentage of your total debt in a lump sum. Your creditors might agree as you are saving their time and effort in dealing with someone who is losing money or on the verge of bankruptcy.
Unlike debt management, a debt settlement plan does not come for cheap. These agencies are run for profit and demand 20-25 percent of total debt amount as fees. There are plenty of hidden fees as well. If you are really to get that debt off of your shoulder and are not eligible to file for bankruptcy, a settlement plan would be the best choice.
A debt management plan seems to be a more reliable and responsible way to clear the debt. If you just make your monthly payments on time, you are guaranteed to be debt-free in 2-3 years. For people with massive debt(over $10,000), the credit counseling agency can convince your creditor to extend the repayment period for a reasonable interest.
On the other hand, a debt settlement plan can be great if your creditors agree to the deal but they don’t then there is no other option left.