Out-of-control debt has a way of taking over your life. High interest rates can cause your balances to climb higher each month, and the higher balances hurt your credit score, making it more difficult to obtain financing for important household expenses or personal needs. As the debt grows, so does your stress.<\/p>\n
<\/p>\n
Some debt, such as a mortgage or car loan, can be used strategically to improve your financial circumstances. Owning a home allows you to build equity and increase your net worth, and a car enables you to travel to work, expanding the range of employment options available to you. But\u00a0unsecured debt, such as\u00a0personal loans, credit cards,\u00a0payday loans, and medical bills, can overwhelm you if you can\u2019t pay them down quickly.<\/p>\n
Fortunately, there are options for regaining control of your finances. Debt management and debt settlement programs can help you work with creditors to pay off your debts or pay a lump sum that is less than what you owe but still closes the account.<\/p>\n
Neither option involves a credit check, although both will impact your credit score long term. The two key differences are whether you\u2019re repaying the debt in full and whether the creditor is involved when establishing a repayment plan.<\/p>\n
You use a debt management plan if you have the ability to service your debt and you don\u2019t want a lot of damage to your credit. A settlement plan involves not paying your bills in hopes that a creditor will settle, and it can significantly hurt your credit. <\/a>Debt management may be a better option if you plan to buy a house or will need good credit for other types of financing, but the choice comes down to your circumstances.<\/p>\n A debt management program allows you to effectively\u00a0consolidate all your eligible debts\u00a0into a single monthly payment. Typically, you\u2019ll work with a debt management program that contacts each of your creditors and asks them to lower your interest rates and waive future late fees and penalties.<\/p>\n A lower interest rate enables you to pay down the principal faster, providing a clear path out of debt. After agreeing with your creditors, a debt management counselor will determine the final total of how much you owe and what you\u2019ll need to pay each month to pay off the debt within five years.<\/p>\n Your monthly payment will also include the debt management company\u2019s fees as well. These vary by organization, and many states cap the amount firms can charge.<\/p>\n \u00a0Most debt management companies are nonprofits, so they don\u2019t charge exorbitantly for their services. But you\u2019ll want to make sure that you\u2019re saving money on the monthly payment once the decreased interest rate and company fees are included.\u00a0If you agree to the plan and can afford the installment amounts, you\u2019ll send one monthly payment to the debt management company instead of several payments to different creditors. The program will then disburse that payment to all your participating lenders.Debt management programs can be a helpful option if you can only afford your minimum monthly payments and aren\u2019t making progress on repaying the loan. These programs have a maximum repayment period of five years. Once you\u2019ve set one up, you can see the light at the end of the tunnel.<\/p>\n \u201cIt\u2019s a win-win for the client because all of that collection stuff stops and they get a lower payment,\u201d said Phil Heinemann, executive director and president of Debt Management Credit Counseling Corp. \u201cAnd it\u2019s a win for the creditor because they\u2019re getting the debt paid.\u201d<\/p>\n Still, no program is a perfect fix, and you should know both the benefits and disadvantages before you decide to pursue debt management.<\/p>\n The average score rose from 613 to 647 within 18 months. A rising score boosts your borrowing power in the future.<\/p>\n \u00a0Assuming the debt management counselor can get that down to $700 from $1000, that\u2019s still a big number. If you can\u2019t make the reduced payment, you may need to look into debt settlement instead.<\/a><\/p>\n Debt settlement provides a way out of debt for borrowers who cannot afford to repay their obligations in full. Someone who has low income is unemployed or is otherwise financially burdened may be able to seek relief through debt settlement, though this process can be stressful and emotionally challenging.<\/p>\n Typically, a settlement program is geared toward somebody that\u2019s already in default, credit\u2019s already shot, and basically they just want to liquidate this debt for the least amount of money they can pay, Heinemann said. He estimated that borrowers generally pay 40 cents on the dollar in settlement programs. If you choose to work with a debt settlement company, it\u2019ll assess your qualifying debts and estimate how much it thinks your creditors will be willing to settle for, typically a percentage of your existing debt. Then they\u2019ll calculate your monthly payments based on that estimate. Rather than paying your creditors each month, you\u2019ll send money to the debt settlement agency, just as you would with a debt management program.<\/p>\n But, unlike the former, the settlement company will hold those payments in an escrow account \u2014 not distribute them to the credit companies. In about six to eight months, creditors may become willing to discuss settlement options if they are convinced you cannot pay the full debt. Once your settlement company reaches an agreement, it\u2019ll use the money you\u2019ve deposited to pay off the creditors. You\u2019ll also be charged a fee for the settlement services.<\/p>\n Although debt settlement may seem like the only option for some people, it\u2019s important to know that it will significantly harm your credit. While you\u2019re sending those monthly payments to the settlement company, your creditors are not being paid. This means that you are accruing interest, late fees and other penalties. The growing debt, and the delinquency will appear on your credit record.<\/p>\n Creditors can also be very aggressive in their collection tactics. The settlement process can take years, and you and your loved ones must be prepared for intimidating phone calls, letters and the possibility of a lawsuit or wage garnishment before the accounts are finally closed. Even if you work with a reputable debt settlement company, you may still be sued if the creditors decide against settling. The New York City Bar found that borrowers often end up with greater debt and increased financial hardship as a result of the settlement process.<\/p>\n Let\u2019s review some of the key points of debt settlement here:<\/p>\n \u201cIt\u2019s good for the client in that they don\u2019t really have to deal with the calls because they got somebody else to take them,\u201d Heinemann said. \u201cBut it doesn\u2019t really change things because they\u2019re still not paying their debt and the creditor\u2019s not happy.\u201d<\/p>\n The final alternative after debt settlement is filing for bankruptcy, which many people choose to avoid, whether for moral or religious reasons or because their jobs prevent them from doing so.<\/p>\n The first step toward debt repayment should be talking with your creditors. Many companies have internal relief programs and may be able to offer you modified terms for some period until you\u2019re able to make full payments again.<\/p>\n If you are experiencing a sustained hardship or know you won\u2019t be able to make full payments once the relief period ends, you may want to consider a debt management program. Before making any decisions, sign up for credit counseling. Debt management and settlement companies are required to offer free\u00a0credit counseling\u00a0and budget reviews, and a counselor will help you decide whether either of these is the right option.<\/p>\n Before you sign on with a debt management or settlement plan, make sure you do your homework. Visit the\u00a0National Foundation for Credit Counseling\u00a0and\u00a0Financial Counseling Association of America\u00a0websites to look up licensed nonprofit credit counseling agencies in your area. Be sure to look into reviews submitted with the Better Business Bureau, as well as find out how other consumers have fared with the organization.<\/p>\n If all you see is angry customers saying, \u2018They took my money and my credit\u2019s worse than it was before,\u2019 definitely a big red flag.\u00a0 Unclear and misleading language should always be a signal that a company is untrustworthy. Other red flags include any upfront payment requirements. Debt management programs must offer free counseling before enrolling clients, and debt settlement companies legally cannot charge fees until a settlement has been made. Any company that demands an upfront payment should be avoided.<\/p>\n Businesses that pressure you to take immediate action should also be regarded with skepticism. There are no deadlines for enrolling in debt management or settlement, so if a representative insists you act immediately, you\u2019re better off looking elsewhere.<\/p>\n Most importantly, take the time to meet with a counselor and consider the options before you. Everyone\u2019s circumstances vary. What a friend or relative did to escape debt should have no bearing on what you choose to do.<\/p>\n DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.\u00a0 Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email\u00a0<\/em>contact@dmcconline.org<\/em><\/a>.DMCC is located at 1330 SE 4th Ave, Suite F, Fort Lauderdale, FL 33316.<\/em><\/p>\n Article from LendingTree.com<\/em><\/strong><\/span><\/p>\n \n","protected":false},"excerpt":{"rendered":" Out-of-control debt has a way of taking over your life. High interest rates can cause your balances to climb higher each month, and the higher balances hurt your credit score, making it more difficult to obtain financing for important household expenses or personal needs. As the debt grows, so does your stress.<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[16,6],"tags":[],"class_list":["post-1345","post","type-post","status-publish","format-standard","hentry","category-credit","category-debt"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p5shu1-lH","_links":{"self":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1345","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/comments?post=1345"}],"version-history":[{"count":4,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1345\/revisions"}],"predecessor-version":[{"id":1978,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/posts\/1345\/revisions\/1978"}],"wp:attachment":[{"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/media?parent=1345"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/categories?post=1345"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dmcccorp.org\/edu\/wp-json\/wp\/v2\/tags?post=1345"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What is debt management?<\/h2>\n
Pros<\/h3>\n
\n
\n
Cons<\/h3>\n
\n
What is debt settlement?<\/h2>\n
Pros<\/h3>\n
\n
Cons<\/h3>\n
\n
\n
Get started managing your debt<\/h2>\n
Choose for yourself<\/h2>\n