The Difference Between Debt Settlement, Consolidation and Management

debt settlementCompanies that claim to help ease the burden of your debt are so tempting!  It seems like a great idea… and sometimes it is.  But please be careful before you move forward with these companies!  Unfortunately this industry is ripe with scammers… and even if the company is not scamming and is completely legitimate, is it right for you?  We highly recommend that you get an opinion regarding your options from a consumer or bankruptcy attorney before you move forward with debt consolidation, debt management, or debt settlement.  The answers you receive from an attorney may surprise you, and you will almost certainly have a better understanding of your options.

Hint: Don’t believe everything you read on the internet!

What’s the difference between debt consolidation, debt settlement, and debt management?  Here’s a quick breakdown:

  • Debt settlement companies offer to negotiate settlements of your debts for a fee.  In other words, they offer to negotiate down the amount you owe on a debt by communicating with the creditor on your behalf.  These companies typically collect a monthly payment from you that it distributes to your creditors.  These types of programs have particularly bad track records and are ripe with scammers.

  • Debt consolidation typically involves taking out a lower interest loan to pay off multiple high interest debts such as credit cards.

  • Debt management programs typically combine debt settlement, credit counseling, and management of the debt settlements with a counselor.

The most unfortunate problem with debt consolidation, debt management, and debt settlement is the lack of accountability.  You may be induced to pay these companies hundreds of dollars per month… but do you know where your money is going?  How can you be sure?  What will you do if the company accepts your money but does not use it to pay your creditors?

Debt consolidation, debt management, and debt settlement programs typically require a monthly payment that is quite high.  In addition, these companies usually require you to agree to have the money directly withdrawn from your bank account.  Some companies amass your monthly payments for months (but still take their own fees out) before ever paying your creditors.  In the meantime, your bills are going unpaid and fees and interest are racking up that may or may not be negotiated away.

Normally these companies require you to start paying them right away.  That means that you stop paying debts (if you were paying them).  If the company is a good one, it still will take months to negotiate a settlement.  In the meantime, creditors will keep calling you and harassing you over the telephone.  Creditors can still sue you in court for the unpaid balances.  And you will have little or no control over when and how your debts are being handled.  Sound scary?  It can be!

Most internet articles, commercials, and radio and television personalities will tell you that bankruptcy should be your last resort.  But that may be bad advice. Before you “settle in” with a debt consolidation, debt settlement, or debt management company, go get some real advice from a qualified attorney.  There are many options for conquering your debt.  None of them are a “last resort.”  There are pros and cons to each, and understanding those pros and cons is the first step to a better financial future.  We offer free consultations to review your options with you.  There is absolutely no obligation.  We are passionate about helping consumers to understand their rights and their options, and assisting consumers in navigating unstable financial situations.