Debt Management Plan vs Debt Settlement
May 17, 2023

Debt Management Plan vs Debt Settlement

Debt Management Plan vs. Debt Settlement

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 which 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 pay 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.

This means a debt management plan is really just a new commitment 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 which a debt lawyer will often suggest for borrowers who are struggling to keep up with repayments. This 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.

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 way forward because it reduces the amount of debt owed to your creditors. This process will typically last for 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 amount 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 to go down this route because debt settlement is a better option than filing for bankruptcy. Depending on various factors, a 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.

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. A 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.

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