Debt Management Plans are Better Than Settlement

Debt management plans versus settlement plans. The terminology alone can be pretty confusing. What are the differences between them? How do they work? Which one is the better option? In this article, I'll explain the key differences between debt management and settlement plans, and I'll point you toward some related resources where you can learn more about each of them.

But first, let's get to the thesis of this article. Here's the case I'm trying to make. In nearly all cases, debt management plans are a much better option than debt settlement. So keep this in mind if you find yourself swimming in debt and looking for a solution.

Debt Management vs. Settlement

Before we go any further, we need to address the terminology at use here. Here are the primary differences between the two concepts being discussed in this article:

• Debt Management Plans -- This is a program that allows you to repay your debt over time. You would start by creating a budget to identify your monthly income versus expenses, and then you would create a payment plan that allows you to pay down your debt. Under this type of plan, you would pay off the full amount of your debt.
• Debt Settlement Plans -- Through this process, you would work with your creditors to arrange some form of settlement to pay off a lesser amount of your debt.

We at the Home Buying Institute always recommend the first option over the second. A debt management plan is a better option than a settlement, and for several reasons. Now you might be asking, "Why would I pay off the full amount of my debt when I could settle for paying a lesser amount?" Here's why:

When you settle your debt instead of paying the full amount, you will also damage your credit score. Your creditors will report the settlement (and the resulting charge-off) to the credit reporting bureaus. This kind of negative entry can stay on your credit report for up to seven years, preventing you from achieving the highest credit score possible.

On top of this, only a debt management plan will address the core problems of overspending. A settlement might make some of your debt go away, but it does not address the behavior that led to the problem in the first place. The steps involved in creating a debt management plan are the steps to financial responsibility in general.

By creating such a plan, you will have to examine every aspect of your finances, and you'll be exercising some much-needed discipline that may have been lacking in the past. This is why we recommend a debt management plan over any form of settlement.

Where to Go for Help

There are thousands of companies that claim to offer debt help to consumers. Unfortunately, however, many of them actually take advantage of consumers in their moment of weakness. It's a despicable practice, for sure, but it's also a reality. If you need help creating a debt management / payment plan, there's only one place we are comfortable directing you:

The National Foundation for Credit Counseling (www.NFCC.org) is a nonprofit, community-based organization that offers a variety of debt management services for consumers in the U.S. They also have a special website for this purpose, and you can find it at DebtAdvice.org.