After doing your best to keep things flowing, the need for professional help with your debt has become clear. You know you’re going to be in serious trouble if things keep progressing on their present trajectory, so you’re trying to find the best way to go.
Debt management and debt relief can look quite similar at first glance. However, it’s important to take a moment to understand the difference between debt management and debt relief before you settle upon one or the other as your strategy of choice.
Multiple debts are combined into one, which is managed with a single monthly payment. Further, the debts are typically satisfied at a lower interest rate and with fee reductions.
You’ll work with a manager who will negotiate payoff terms with lenders on your behalf. The manager also ensures your payments reach creditors according to the guidelines of the agreement struck on your behalf.
The entire process can take anywhere from three to five years. You’ll be barred from getting new credit accounts in the interim and you’ll be required to stop using your credit cards until the plan is complete.
Again, your debts are managed with a single monthly payment. Here too, someone will negotiate for the waiving of fees with your creditors. They’ll also work to get some of the accrued interest and a percentage of the principal amount forgiven as well.
Also, as above, instead of paying your creditors directly, you’ll deposit your monthly payments into an account. However, in this case, the funds will only be disbursed when the balance is sufficient to pay a debt off in full — according to the agreement reached.
Lenders are prone to accept this because your payments will probably have stopped coming in altogether. They know they’re likely to get even less than your debt relief agent is asking them to accept if you file for bankruptcy protection.
Debt Management Pros
You’ll pay off your debt faster because of the reduced interest rates and lowered fees. Your credit score could actually improve if you complete the program in an exemplary fashion. Debt collectors will stop calling once they know you’re in a management program and you’ll only have one payment to deal with each month — rather than several.
Debt Relief Pros
As these Freedom Debt Relief reviews will attest, you may be able to settle your debts for considerably less money. You’ll avoid filing for bankruptcy protection and enduring possible asset liquidation. Some settlement programs are completed in as little as two to three years.
Relief typically works best when your accounts are seriously delinquent, or in collections. As a result, the effect on your credit score is more negligible — because things will already be in pretty bad shape. However, you may be better positioned to rebuild your score once the program is complete.
Debt Management Cons
You’ll be kicked out of the program and left in worse shape than when you started if you miss payments. You’ll have to close the vast majority of your credit accounts. Fees can be high if you go with a for-profit manager. You’ll have to be in a position to eradicate all of your debt within three to five years. If you have more than that, management is likely to be a poor option for you.
Debt Relief Cons
Your credit score will take a pretty sizable hit, because you’ll stop paying and your creditors will report you to the bureaus. Some lenders won’t agree to accept settlements, so you might still be left with some accounts with which you’ll have to deal.
One More Thing…
Regardless of the difference between debt management and debt relief, certain types of obligations are immune to both remedies. Student loans, child support, alimony and back taxes cannot be negotiated away nor managed in this fashion.