Unfortunately, debt can start to spiral out of control right before your eyes. Keeping up with payments, staying on top of statements, and making sure everything fits within your budget can become overwhelming very quickly. If any of this seems all too familiar to you, you may need professional help to get out of debt. Debt relief programs put a team of experts on your side, so you can customize a plan to get out of debt that will work for your needs, budget, and goals.
Comparing Two Debt Relief Programs
When you need help to eliminate your debt, you have two basic options:
- With a debt management program, you set up a repayment plan that pays back everything you owe at reduced interest rates, so you can get out of debt and avoid additional credit damage.
- By contrast, a debt settlement program pays back only a portion of what you owe to each creditor. This can result in damage to your credit score, but it generally offers a faster, cheaper way to get out of debt.
This table can help you understand the benefits and drawbacks of each solution.
| Debt Management Program | Debt Settlement Program | |
|---|---|---|
| What will you pay back? | All of the principal, plus some interest charges | A percentage of the principal |
| Interest charges | Reduced or eliminated | Not a factor |
| Average time required | 36-60 months | 12-48 months |
| Best used for | Debts that are still with the original creditors | Debts that have already passed into third-party collections |
| Credit impact | Generally neutral or positive | Negative |
| Average savings | Reduces total credit card payments by up to 30-50% | Average settlement comes out to 48% of what you originally owed. |
Using a Debt Management Program
You enroll in a debt management program through a consumer credit counseling agency.
- The first step is to generally receive a free evaluation from a certified credit counselor.
- The counselor reviews your debt and budget to see if you are eligible for the program.
- Then you find a monthly payment that you can afford, given your current budget.
- Next, the credit counseling team calls each of your creditors to get them to accept reduced payments through the program.
- They also negotiate to reduce or eliminate interest charges and stop future penalties and fees.
- Once all your creditors agree, your program begins. You make one payment to the credit counseling agency, then they distribute the payment to your creditors on your behalf.
- There is a setup and monthly administration fee that gets rolled into your regular monthly payments. Fees are set by the state where you reside and are capped at $79 nationwide; most people pay around $49.
Types of Debt You May be Able to Consolidate with a Debt Management Program
A debt management program is primarily designed to solve challenges with credit cards and other unsecured debts. However, other types of debt may be included as well. This program cannot help with secured debts, such as auto loans and mortgages.
- Credit cards
- Gas cards
- Retail store cards
- Unsecured personal loans
- Medical bills that have passed to collections
- Other debts, including utilities, that have passed to third-party collectors
Using a Debt Settlement Program
Debt settlement allows you to get out of debts for a portion of what you owe. In general, most creditors and collectors will only agree to a settlement if you make an offer with a single lump-sum payment. Since most people facing challenges with debt don’t have a large sum of cash available to make settlement offers, they go through a debt settlement program to generate those funds.
- First you receive a free debt evaluation to make sure debt settlement is the right relief option for you.
- The resolution specialist will help you work out a small monthly set aside amount that you can afford pay each month.
- The funds are put in a set aside account until you have enough money in the account for settlement team to begin making offers to your creditors.
- Once a creditor accepts a settlement offer, the company will apply fees for the settlement; this is typically a percentage of the original amount you owed on each debt.
Types of Debt You May be Able Settle Through a Debt Settlement Company
A debt settlement program works for most unsecured debts. You cannot settle secured debts that have collateral, such as mortgage and auto loan debt. However, it is possible to settle deficiency judgments. That’s where you still owe money on a debt, even though the collateral has been repossessed.
- Credit cards
- Gas cards
- Retail store cards
- Unsecured personal loans
- Medical debt collections
- Collection accounts for utilities and cell phones
- Private student loans for non-Title IV schools
- Mortgage “short pay” balances
- Auto repossession debt
- Apartment leases for an apartment where you no longer live
Getting The Help You Need
Debt relief programs help you get the support you need to get your finances back on track, so you can avoid bankruptcy.* Dealing with debt can be stressful and all-consuming. Having a professional team there to guide you through the process and help you overcome challenges can give you the best possible chance for success.
If you’re working to get out of debt and can’t seem to make any headway on your own, contact us today. We can help you determine which debt relief option is right for you.