Debt Management To Debt Settlement Programs: Advice For Making The Switch

Monday, November 4, 2013
Getting to grips with personal debt is not easy. Between the interest rates charged on different loans and the pressure to meet everyday bills, the likelihood is that most of us will need some help to take care of everything. It is why debt settlement programs are becoming so popular.

But for many people, the first step in taking control of spiraling debt is a debt management program instigated by professionals who make it their business to better organize your repayment schedule. The idea is to make everything more manageable, but this does not always turn out to be the case.

So, what is to be done when the management program is not working and a switch to a settlement program becomes the more prudent option. Both can make the task of clearing existing debts a lot easier, but can the switch be made? The answer is yes!

Settlement Vs Management: The Key Difference

So, what are the differences between the two programs? Well, to be honest, the differences are pretty major, and the consequences that come with them are very different too. The biggest difference, however, is that with debt settlement programs, the full amount of debt is not repaid.

This kind of program involves representatives negotiating a final figure that is a percentage of the total amount due. A good debt settlement company will be able to negotiate as little as 30% of the existing debt, usually by arguing that anything more is impossible to pay.

A debt management program, on the other hand, sets about paying the full amount of the debt by instigating a strict financial management regimen. It is usually done by the management company clearing existing debts in full on your behalf, in return for effectively taking control of your finances for a given time.

Debt Management And Settlement: Pros And Cons

There are both advantages and disadvantages to whatever type of program is taken up. But a key advantage that debt management has over a debt settlement program is its long-term consequences. For example, because all debts are paid off in full, the credit score is improved, making better terms available for future loan deals.

In contrast to a debt management program, settlement agreements are noted in credit reports as clearing debts in part. This means the credit score is affected, and any future loan application that lender will take this information on board. This can make approval a little more difficult, but is certainly likely to see less than perfect terms offered.

Of course, clearing existing debts is the most important factor when current financial pressure is extremely high. However, there is little doubt that settlement agreements have the more severe consequences.

Making The Switch

Before making the switch to a debt settlement program, it is essential that everything be discussed with your debt counselor. Simply switching might seem like the right move, but expert advice is very important to take on board – there may be a better way, especially when creditors want repayment in full, and are probably willing to re-negotiate repayment terms to accomplish that.

If the only practical decision is to abandon your debt management program, then make sure to check out the prospective debt settlement companies carefully. They will charge fees, so take that into account in assessing the worth of the move, and make sure they have an impeccable reputation.

Be sure to let your creditors know your decision, and secure a detailed debt management report to ensure your new position is crystal clear. Clearing existing debts through debt settlement does mean significant savings, but be aware that a single lump sum payment may be needed in some cases.