If you are filing for bankruptcy or cannot keep up with the repayments on a loan, you might be looking into setting up a debt management plan. However, debt settlement is another option that a debt lawyer will often recommend to clients instead. In this article, we help you consider why debt settlement can be a more convenient and beneficial alternative to a debt management plan.
Debt Management Plan Versus Debt Settlement
A debt management plan is a contract in which a borrower agrees to consolidate loans and make a set monthly payment, which is then divided among the creditors. These payments are set based on what you can afford, but there are downsides to consider. For instance, the debt must be paid in full and creditors can still get in touch to ask that you pay up right away. Also, you cannot include a mortgage or secured debts in this arrangement, and you must be able to afford the new repayments.
In other words, a debt management plan is really just a new, re-structured way to repay the full amount of the outstanding debt. A debt settlement attorney will often warn against this option as many borrowers simply don’t have enough disposable income to cover the monthly payments.
Debt settlement is a type of relief that a debt lawyer often suggests for borrowers who are struggling to keep up with repayments. It is essentially when a borrower tries to renegotiate and reduce the amount of debt owed to a creditor. Lenders and creditors are sometimes willing to accept this lesser amount rather than entering into a long, drawn-out process with the borrower.
What Debts Are Included in Debt Management Plans and Debt Settlement?
When considering debt management plans and debt settlement, your best bet at a successful choice is knowing which options appeal best to your needs. Debt management programs typically focus on unsecured debts, with credit card accounts being the most common. These plans can also cover personal loans, medical bills, and sometimes even collection accounts. On the other hand, debt settlement companies often work with a broader range of unsecured debts, including credit cards, personal loans, divorce debt, payday loan debt, and even some types of business debts. Do note that secured debts like mortgages or car loans are generally not eligible for either debt management or debt settlement. Both options aim to help you become debt-free, but they approach the process differently.
Which One Is Right for You?
Debt management and debt settlement both offer unique benefits, but the right choice depends on your specific financial situation. To determine which option might work better for you, you should consider what each approach offers and who tends to benefit most from them.
Debt Settlement
Debt settlement can be a powerful tool for those struggling with significant unsecured debt. Benefits of debt settlement include:
- Potential for substantial debt reduction.
- Shorter time to become debt-free compared to minimum payments.
- Option to avoid bankruptcy.
- Help with various types of unsecured debt.
Debt Management Plans
Debt management plans, often facilitated by a credit counseling agency, offer a structured approach to paying off debt. These programs can be beneficial for those who need help organizing their finances and reducing interest rates. Some advantages of debt management include:
- Consolidated debts into one monthly payment.
- Potential interest rate reductions.
- Structured plan to pay off debt within a specific timeframe.
- Education and support from a credit counselor.
Why Debt Settlement Can Be the Best Way Forward
If you don’t have much money left over at the end of each month, a debt lawyer will often recommend debt settlement for some of the following reasons.
- Reduced Debt: Debt settlement is often the best option because it reduces the amount of debt owed to your creditors. This process typically lasts two to four years, which means you can be free of any overwhelming debt rather quickly.
- Avoid Debt Collectors: Collection companies usually get involved when repayments are overdue, but debt settlement can keep these debt collectors at bay. It might not seem like a priority right now, but avoiding these persistent calls and letters can save a great deal of stress.
- Avoid Being Sued: Debt settlement can help you avoid being sued, as the creditors usually prefer to receive a reduced amount instead of going to court. (And if you are sued, you’ll have a lawyer on your side to help you).
- Credit History: Many borrowers also choose this route because debt settlement is a better option than filing for bankruptcy. Depending on various factors, bankruptcy can stay on your credit report for years longer than a settled debt. But that’s just part of the story.
How Will Debt Settlement Affect Your Credit Score?
Debt settlement can damage your credit history because it involves not paying your bills. While this can stay on your credit history for up to 7 years, it’s typically not viewed as damaging as bankruptcy or ignoring the problem and continuing to miss repayments. A debt management program may not have a negative impact on your credit history if you’ve stayed current on all debts. However, you will still need to repay the full debt, which may not be financially possible or can pose other problems for your credit in the future.
Either way, a debt settlement attorney can help minimize damage to your credit and devise a plan that can benefit your finances in the long term.
Is it a Good Idea to Negotiate Credit Card Debt Settlement Myself?
Negotiating credit card debt settlement on your own can be a daunting task. While it’s possible to approach creditors directly, the process can certainly be very challenging and VERY time-consuming. Dealing with large credit card companies or tackling RV and boat debt requires specific knowledge and experience. Without the backing of a debt settlement company, you might find it difficult to secure favorable terms or significant reductions in your debt. Additionally, the emotional stress of these negotiations can be overwhelming, not to mention having to deal with the normal stressors of life. That’s why many people choose to work with professionals who have experience handling these complex situations and can advocate on your behalf.
Why You Should Work with a Debt Settlement Attorney
Debt settlement is a realistic option if you cannot keep up with repayments and don’t want to file for bankruptcy. Poor credit history might also make you ineligible for a debt consolidation loan and disposable income each month, and a debt management plan is unlikely to provide any genuine sense of debt relief.
However, there is a risk involved as debt settlement can negatively affect your credit history, and this is the first reason you should contact a debt lawyer. Their expertise can help you navigate the process smoothly. Creditors often prefer to avoid legal proceedings, so having a debt settlement attorney by your side can give you some serious leverage. Lastly, getting sued is always a possibility when you fall behind on debt repayments. Having a lawyer on your side to help will be invaluable.
Are you feeling somewhat overwhelmed by an outstanding debt?
Get in touch with a debt settlement lawyer at McCarthy Law today.