If you read some of the articles that are all over the web on how to get out of debt, and you made a real effort, and gave it your best shot, but just got deeper into the hole every month, then it doesn't necessarily mean that either you or the systems were at fault. If a person has seriously, but unsuccessfully attempted to reduce their debts, then the most common reason is that the monthly interest and fees are too high for available funds to have any real impact on them, and if the person can't increase their income then either the fees and interest will have to reduced, or the total amount of indebtedness will have to lowered before any progress can be made. And the above is in essence the fundamental difference between debt settlement and debt management, and which one is a right for someone depends almost entirely on their financial situation. I should probably mention that although debt consolidation and debt management are often thought of as the same thing, they are in fact totally different. Debt management does not involve taking out a loan, whereas the debt consolidation means taking out an equity loan and using the money from it to pay off all your debts, with the only exception being your mortgage. Debt Management Explained In order to be accepted into a debt management plan, the applicant needs to have not just a steady income, but also some income to spare after covering his or her living expenses, money that will be used to make a regular payment to the creditors. A debt advisor, and we'd stress only one that works for a BBB (Better Business Bureau) company, contacts every creditor with the probable exception of the one holding your mortgage, and arranges a reduction of interest rates and fees. Upon completion of the negotiations, the debtor has a set sum deposited into an escrow account every month and every creditor is paid from it, and although the effect on ones credit rating should be minimal, it will be downgraded, since any restructuring of debt involves a lowering of one's credit score. Debt Settlement Explained Debt settlement is for those that wouldn't have enough to meet the one monthly payment required for Debt Management, even after both the interest rate and the fees had been reduced, meaning that the actual amount of one's debt needs to be reduced. Creditors only will only grudgingly lower their interest rates and perhaps lower some fees, so getting them to reduce the actual amount owed can normally only be done by indicating that bankruptcy is the only alternative, and the debtor will normally have to be several months in arrears before he or she is taken seriously. How much your credit rating will be affected by taking the debt settlement route will largely depend on how good or bad your credit score is before you do it. If your present score is bad to terrible then debt settlement won't effect it much, but if it's excellent then it will take a very big hit. A few bad apples have got the debt settlement business some bad press in the last few months, but the business is not a new one and right now over $20 billion dollars in consumer debt is currently involved in debt settlement programs. The Association of Settlement Companies (TASC), which is the professional association for the debt settlement industry, has several hundred member companies that are carefully scrutinized, and if you go with a Debt Settlement company that's BBB recommended then there should be little to fear. Debt Settlement is extremely labor intensive because deals with creditors often have to be reworked several times, since lenders are not the slightest bit interested in your deals with other creditors, but only in what's in it for them. The debt settlement company is therefore forced to return to every creditor that previously agreed with a deal, and present them with a new one based on the last deal made, and it can only provide you with final contract when a deal has been made with every company that's willing to participate. Some companies claim, and probably sometimes get a 50% reduction in debt, but this is more than likely a best case scenario and 40% would be good to excellent, and regardless of what you're promised, be prepared for the process to take months and not weeks, during which time you'll get harassed on the phone, in letters and by debt collectors wanting their pound of flesh.
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