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Debt Settlement vs Debt Management: Take your pick

Ongoing pandemic has changed many things for people, especially those who took loans based on their future income. With job loss and pay cuts, it has become difficult for people to pay off their debts on time. The situation has led to an increase in debt relief programs in the Indian market. Two of these solutions are debt management and debt settlement. People often get confused between these two and use them interchangeably.

Nonetheless, these two are entirely different. Even though these two come under financial planning, both solutions have fundamental differences. Let us look at how these two are different and the pros and cons for each of the solutions.

Debt Settlement

Debt settlement is a strategy that allows one to pay a lump sum amount of their total debt load. You have to pay some amount from your existing debt, and it will be labeled as “settled.” One catch here is that only unsecured loans are eligible for settlement. Debt Settlement includes unsecured debts like credit cards, personal loans, business loans (without collateral), and student loans (without collateral). 

Now, let us have a look at the pros and cons of debt settlement.

Pros:

  1. You will be settling your debts at a lesser amount than your current debt load, which will also include the debt settlement company’s fee (if you hire one).
  2. Usually, debt settlement companies can save up to 50% of your debt load.
  3. It saves one from bankruptcy or asset liquidation.
  4. It will take 2-3 years to clear all your unsecured debts, which is relatively fast.
  5. Each settlement program is unique and designed as per one’s affordability.

Cons:

  1. Debt settlement harms your credit score, but if you are already delinquent, you are already in a lousy situation, which means debt settlement can be a good option.
  2. Secured loans do not qualify for settlement, so while one will be saving up to pay off unsecured debt, they have to pay the secured debts on time, if any.
  3. Unless you are already delinquent, you will have to stop making payments till your account is seriously delinquent to begin the settlement process.
  4. If one tries to settle their debts themselves, there might be chances of not getting a fair settlement offer.

Now that you know the pros and cons of debt settlement, we are sure you would decide if it is the best option for you. As a suggestion, we would advise you to take professional help to settle your debts. If you are looking for advice, you can reach out to us at 0124-666-3-666 or visit our website for more information.

2. Debt Management

Now that you understand debt settlement let us move on to the next option: debt management. Debt management is also a financial management strategy that allows you to club your debts into one and pay them at a lower interest rate. It may sound easy, but it has its drawbacks. Like debt settlement, debt management also resolves unsecured debts. Debts like student loans, automobile loans, mortgages, and more, are not eligible for debt management programs.

Pros:

  1. As all the debts are merged, you pay less interest rate, especially on your credit cards.
  2. You don’t have to stop paying for your debts, which means your credit score would improve.
  3. Once you enroll in a debt management program, collectors stop contacting you.

Cons:

  1. If you are irregular on payments and cannot make continuous payments, you will be taken off the program.
  2. You are required to close all your credit cards.
  3. The program will not work if you have too much debt to be managed and cannot afford the program.
  4. Falling off the program will put you in a worse position.

Which one will be better for you?

Well, we believe that each person’s debt situation is different. Your choice depends on your current situation. You need to weigh each one’s pros and cons and decide which one works the best for you. Before picking any one of these, you need to carefully consider all the factors and look at your current situation. 

Are you deciding to go for a debt settlement program?

If yes, then you don’t have to look further! Our trained debt consultants can assist and take you through the whole process to make your decision easier. You can visit our website www.freed.care to know more or give us a call on 01246663666 to have a detailed discussion with our team.

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