Nearly every single time I am working with a customer on their Debt Management Program, this subject will come up, and I am often asked by the Client if this would be the best option for them. Simply put, for about 98% of you, the answer is NO.

Debt Settlement is an option out there for consumers to look at, but it should be one your last options to consider. To me, one of the biggest differences between Debt Settlement and Credit Counseling is that Credit Counseling is working with you and your Creditors on a constant basis to help you become debt free and improve your Credit Rating, where Debt Settlement is only working towards collecting your money each month, and they make little contact with you or your Creditors. For a Consumer who is committed to being debt free, this can make all of the difference in the world.

In Debt Settlement, the basic idea is to build up a pool of funds into an account, and once the amount of funds has reached a certain point, the Debt Settlement Company will approach your Creditor(s) with a Settlement Offer. However, this method has many hidden dangers:

1. Your Settlement Company (not you,) decides when to approach your Creditor(s) with a Settlement Offer.
2. Your Creditor(s) will continue to contact you for Collection purposes during this time.
3. The Creditors can still charge you interest, and Fees during this time, causing your principal balance to increase.
4. The Creditors will continue to report to the major Credit Bureaus that your account(s) are still delinquent.
5. Many accounts will progress towards a Charged Off status on your Credit Report before the account(s) are Settled.
6. If a Settlement is reached, and your balance is reduced by $600.00 or more, you will have additional tax responsibilities.

In Debt Management, the major goal is to help the Client repay all of their debts in full, and to improve their Credit Rating during the process. For someone in a Debt Management Program, there are many benefits the Client will enjoy:

1. The Client and the Debt Management agency work together in tandem on any issues related to their Program.
2. Once the accounts are set up in a DMP, the collection efforts against the Client will stop within 90 days or less.
3. The Creditors will reduce your interest rate, and stop charging Fees, causing your principal balance to start going down.
4. Payments to your Creditors are made at the same time each month, which helps to increase the Client’s Credit Score.
5. Free access to Seminars and our Client Education Series, to to help Clients improve their financial management skills.

Many times, I have spoken to customers who have tried Debt Settlement in the past, and the vast majority of them have regretted the experience. Most of their frustrations centered on: High Fees charged by the Settlement Company, constant collection activity by their creditors, little communication with their representative, and a poor Credit Rating.

Clearly, for someone who is committed to re-paying their debts in full, the wise choice is to seek the help and guidance of reputable credit counseling agency, like Credit Advisors!