Debt Settlement Vs. Debt Management — Which One Is Right For You?

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Getting out of debt can be a difficult process. While debt consolidation can help those wanting to pay off credit card debt or other types of debt, sometimes you need professional help. Two popular options are debt settlement companies and debt management services, but they each offer very different paths to solvency.

Here’s what you need to know about the differences between debt settlement and debt management, and how to tell which option is right for you.  

What we’ll cover

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Debt settlement can reduce what you owe, but comes with risk

Secured vs. unsecured debt

Only unsecured debt (such as credit card bills, medical bills and most personal loans) typically qualify for debt settlement or debt management. Secured debt (such as a mortgage or a car loan) usually won’t be eligible for either service.

That’s because most debt settlement companies tell clients to stop paying their creditors and instead save funds in an account that the company has set up. Once you’ve saved enough, the company uses that money to negotiate a settlement with your creditor.

But in the meantime, your creditors are likely still reporting your late payments to the credit bureaus, lowering your credit score, and the late fees and interest continue to pile on. In some cases, your creditors could sue you and add a whole new set of expenses for you to deal with.

To top it off, there’s no guarantee that your creditors and the debt settlement company will reach an agreement on lowering your payments. While you won’t have to pay the settlement company’s service fee if this happens, you’ll still be saddled with those interest charges, late fees, and possible legal fees. That’s why the Consumer Financial Protection Bureau (CFPB) warns debt settlement could leave you deeper in debt than you were to begin with.

That said, if you fully understand the risks of using a debt settlement company and still want to proceed, do yourself a favor and work with a reputable partner. CNBC Select has ranked New Era Debt Solutions and National Debt Relief as two of our top picks based on cost, customer ratings, company history and more. 

New Era Debt Solutions

  • Cost

    14% to 23% of enrolled original debt

  • Highlights

    New Era Debt Solutions has slightly lower fees than some of the other debt relief services we rated. It’s been in business for 22 years, and is rated 4.93 out of 5 for customer satisfaction through the Better Business Bureau.

  • App available

National Debt Relief

  • Cost

    15% to 25% of enrolled debt

  • Highlights

    National Debt Relief has been in business since 2009, and has helped hundreds of thousands of people get out of debt. While National Debt Relief won’t be a fit for people who owe less than $10,000, it can be a good option for those with large debts.

  • App available

Debt management plans can help you fully pay off your debt 

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Bottom line

If you’re looking to get out of debt, you have options. Debt settlement can help you pay less than you owe while debt management plans can help you pay off debt in several years. They also tend to vary in cost — while a debt management plan can cost a small or no fee, debt settlement tends to cost 15% or more of the debt you enroll in the program.  

Why trust CNBC Select?

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.


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