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When people are struggling to handle their debt, they need to know the difference between two possible solutions known as debt management and debt consolidation. These are two very different financial strategies. The goals associated with each of them are also very different. Before choosing one, a person should know all of the issues associated with them.

Debt Management

According to Investopedia, this is when a company designs a plan that makes it possible for an individual to repay all of their debts with a single monthly payment. In this situation, individuals are working with a debt management company to devise a debt management strategy. The people who use these companies will pay them a fee.

Advantages Of Debt Management

These programs are designed so provide structured principle repayment plans. This makes it possible for a person to repay their debt faster than if they weren’t on such a plan. A person will benefit from fees being waived as well as having a lower interest rate on their debt. There will no longer need to be regular payments sent to each of a person’s creditors. They can send a single consolidated payment to their debt management company. It is then the company’s responsibility to send payments to each of the creditors on their client’s list. The debt management company will send their clients a month statement. It will show their account activity and balances. A person can then easily monitor their progress.

Disadvantages Of Debt Management

Unless a person is in a financial position to make regular monthly payments, this program won’t work for them. Should a person miss a single payment, or make a late payment, a creditor can quickly remove them from this program. Should this happen, it will put them back in the same position of struggling with debt as when they started the program. It’s possible for a person to have so much debt, they are unable to benefit from a debt management program. These programs are designed to help people with their debt by making regular monthly payments for the up to 60 months. It is possible for a person to have so much debt that even with decreased interest rates, and elimination of fees, they won’t be able to finish paying their debt within a program’s time frame. Some companies providing this service are nonprofit, and many others are not. It’s possible for a company to charge high fees for their service. This may be deducted from a person’s monthly payment. This means their entire payment won’t go to paying their debt. Many nonprofit companies do not charge such fees.

Debt Settlement

According to, this financial strategy is designed to do away with some or all of a person’s outstanding debt. This strategy comes with a price. It involves a person negotiating their debt and making specific arrangements with each of their creditors. The goal in this situation is for a person to pay less than what they owe on their debt. Doing this will result is a person experiencing a significant decrease in their credit score. When a debt settlement is on a person’s credit report, it could harm their ability to obtain a loan in the future.

Advantages Of Debt Settlement

The impact on a person’s credit score will not be as severe as if they had filed for bankruptcy. This could be a very cost effective way of handling debt as a person will not have to pay the entire principal amount of the debt. This is also a good way to avoid the need to liquidate assets that would be required in a bankruptcy.

Disadvantages Of Debt Settlement

In this situation, a person has to be up to four months delinquent on all of their accounts, or their creditors will not be willing to negotiate such a settlement. All of the debt that is forgiven will be taxable. A person can also be charged high fees by third-party providers. There is no requirement for a creditor to agree to this type of debt settlement offer. A debt settlement agreement is a gamble. Should a few of an individual’s creditors not be willing to settle the debt, they may be in a situation that is even worse than when they started trying to get settlement agreements.