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Sizeable debt can severely limit your funds and reduce opportunities to grow your wealth. Managing debt may be a national issue, as the Federal Reserve Bank of New York, found that average household debt in America rose to $17.7 trillion in the first quarter of 2024. Debt management and debt settlement are two powerful tools that can help you reduce your household financial burden in certain circumstances.
Here, we’ll break down both debt relief methods and their pros and cons, plus discuss alternate options.
Read on to learn their advantages and disadvantages, and decide which debt relief method will work for you.
Debt management is a debt relief strategy where you budget your funds to repay outstanding balances over time. You can create a DIY debt management plan though it’s strongly advised to work with a financial advisor to access their expertise and resources.
Debt management is ideal for unsecured debt (e.g., credit cards, personal loans and student loans) where there’s no collateral involved in the agreement. Debt management plans will encourage you to make monthly payments on your balance for a set amount of time. The more you pay off your balance, the less you’ll have to pay in interest.
Debt management is a long-term debt relief method that’s meant to pan out across many years. Here are some of the pros and cons of using a debt management program.
Pros
Cons
Comes with fees: If you work with an advisor or a counselor, you may have to pay additional fees for their assistance. There’s normally a one-time $75 set up fee.
The best debt management programs are the ones you can realistically stick with. This method may be right for you if you’re able to budget the funds needed to satisfy your required minimum monthly payments.
It might be time to consider debt management when:
Debt settlement consists of paying a lender a certain amount of money in exchange for a reduced balance or even total debt forgiveness. Negotiation is integral to this process; you can try to negotiate yourself, or you can enlist the aid of a debt relief company.
While debt settlement can reduce your financial burden, it can also impact your credit score. That’s why it’s important to carefully consider how this option can affect you in the short and long term. The entire debt settlement process can take up to four years to complete, and the process can cost between 15 to 30 percent of your original debt.
In theory, debt settlement can reduce your financial burden and act as an alternative to options like bankruptcy. In practice, debt settlement comes with pros and cons you’ll have to consider.
Pros
Cons
Debt settlement programs can be a good fit for you if you’re willing and able to handle the various fees associated with this method. Secured debt isn’t typically eligible for this debt relief option, which means that credit cards and student loans aren’t normally approved for debt settlement procedures.
Debt settlement might be a strong choice for you if::
Debt management and settlement aren’t the only tools you can use to lighten your financial burden. You might consider these alternative debt relief methods for several reasons: They can better suit your budget, they might align with your scheduling needs and they can be the right fit for your credit profile.
Some alternate debt relief options include:
Debt management and debt settlement are effective tools in their own right. Before pursuing any debt relief options, confirm that any negative items on your report are accurate. Lexington Law Firm’s free credit assessment can help you spot inconsistencies on your credit report. Learn more about our services to see which credit resources might help you the most.
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