Debt settlement, debt consolidation, and debt management…don’t they all sound like different words for the same thing? Well, you’d be wrong about that. Your chosen method of tackling debt should be carefully considered based on your profile of debts, your financial situation, your payment history, and, of course, your personality. If you haven’t made a payment on time since 2006, that’s something to keep in mind when you’re talking debt.
Debt management is the process of managing your debts through a variety of means. It’s a program that works with your creditors to pay off your debts by turning several debts into one payment instead of making several payments each month. One of the pros of this method is that it can decrease your interest rates considerably. Most people go for a debt management plan when they want to pay off their debts as quickly as possible.
A debt settlement, however, is when you work with a company to negotiate to pay less than the amount you owe, which your creditors then agree to. Then, over time as you pay a lump sum, your debt is “forgiven” by your creditor. Your accounts will continue to accrue interest in the meantime, however.
Finally, debt consolidation collects all your debts into one lower payment and interest rate, and is typically given to those who have strong enough credit and a reliable enough history to qualify for consolidation. You’ll determine the length of the debt consolidation loan and will be required to pay it off by the end of the loan term.