If you find yourself struggling to pay bills and cover monthly expenses because of credit card debt, there may be a way for you to get some financial relief. Debt can feel crippling, but through resources such as credit counseling and debt help programs, people can get out of debt and regain control over their lives. Two of the most common solutions to debt crises now are debt settlement and debt management programs. Although they both aim to reduce the amount of money consumers are required to pay back to lenders, they are vastly different in their approach. Read the following whitepaper to gain a better understanding of these two programs, and contact Advantage CCS for more debt help ideas and solutions.
Text of Whitepaper: Debt Settlement vs. Debt Management Programs
2 43% OF AMERICANS SPEND MORE MONEY IN A YEAR THAN THEY EARN... Debt Settlement vs. Debt clients send a single payment to the debt they have accumulated enough money from Management Programs management agency, which it then disperses the client to do so. This model relies on the to the creditors. Debt management agencies creditors willingness to negotiate rather thanWhen credit card bills mount up and you nd establish a structured payment schedule for risk a total loss. However, there is no guaranteeyourself struggling to pay the monthly minimum, clients, helping them to reduce debt faster than that creditors will agree to lower the outstandingit is far past time to seek help. Debt is a major they might on their own with the help of reduced balance, which will only have increased duringissue in the US. 43% of Americans spend more interest payments and waived fees. A debt the delinquency period.money in a year than they earn, and 46% of management plan also emphasizes education Additionally, as clients wait the required periodAmericans carry over debt from month to month around credit to help clients establish good debt before the settlement agents enter negotiationsinstead of paying their cards off. Households management habits for the future. with their creditors, collections agencies andwith credit card debt owe an average amount of After enrolling in a DMP, the accounts in creditors will still continue to call and demand$15,800. These gures create a grim picture for question are no longer considered delinquent, payment.how Americans approach nances. Fortunately, so creditors and collection agencies stop callingthere are many debt elimination programs within a month or so. The Impact on Credit Scoreavailable to help people manage their nancial Debt settlement rms rst require that clients When a client enrolls in a debt managementburdens. Here is a more in-depth look at two stop paying all credit bills for 3-6 months program, the label DMP will appear on theof the more common of these programs, debt depending on the rm. Then, the client is clients credit report. This notation has nomanagement plans and debt settlement. responsible for paying a monthly payment to the negative consequences on a credit score. How They Work settlement company for up to 3 years to try and Clients may actually improve their credit scores accumulate a large lump sum of money, which while participating in a debt managementA debt management program (DMP) operates the settlement company keeps in a separate program because they are again makingby lowering a clients interest rates and late fees bank account before they will even attempt to consistent, on-time payments on bills.to make monthly payments more affordable. contact the clients creditors to try to settle the Attempting debt settlement, however, can beThe program lasts for a period averaging 3-5 debt. They will only attempt to negotiate with highly detrimental to a persons credit score.years. Clients will close their credit accounts, creditors for a settlement when they believe Even being late on one credit card for oneand instead of continuing to pay creditors,
MODERNLIFE 3 month can lower a credit score by 50 points. When several credit card Taxes accounts remain delinquent for up to six months, the toll can be enormous. Debt management plans do not affect a persons taxes. In debt Furthermore, if the settlement negotiation is rejected, individuals will have settlement, however, individuals are responsible for paying taxes on the taken a hit to their credit scores with nothing to show for it. While the amount removed from their debt as if it was money they had earned. In damage will not be as great as ling for bankruptcy, it may still be steep. other words, if a $10,000 debt is negotiated down to $3,000, the individual is responsible for paying taxes on the $7,000 savings. Depending onS OME ORGANIZATIONS your tax bracket, taxes paid on this amount could result in having to pay thousands of dollars extra when they are next due. OFFER ENTIRELY FREE DEBT MANAGEMENT PROGRAMS... A Final Word While these two approaches have similar goals, their different approaches Costs & Fees have vastly different consequences for participants. Using a debt management program to reduce credit card debt is best for maintaining The costs and fees associated with these programs differ greatly. Debt a credit score and developing good debt management habits. Debt management programs are often non-prot organizations, vetted by the settlement, on the other hand, causes great damage to credit, and incurs IRS and the Federal Trade Commission. Programs from these accredited steep costs while ultimately remaining a gamble. organizations provide free counseling for clients, and may charge a Debt management programs offer clients a creditor-approved approach to monthly fee for processing and handling typically priced around $25. nancial recovery while still offering signicant savings. People who have Some organizations offer entirely free debt management programs, a steady income but cant afford their monthly credit card bills should look if you qualify. In any case, all applicable fees are fully disclosed at the into credit counseling and debt management programs to get a fresh start. counseling session before enrollment. Debt settlement groups are not regulated as strictly as debt management Advantage Credit Counseling Service, Inc. is a non-prot consumer organizations, and practices will vary from rm to rm. Generally, the credit counseling organization that has been helping clients recover from cost of negotiation is a at fee that can exceed $1,000 at some rms. nancial debt since 1968. Through free nancial counseling and debt Alternatively, settlement negotiators may take a percentage fee of 15- management programs, Advantage CCS saves clients thousands of 20% of the total debt ($1,500-2,000 for a $10,000 debt). Clients of debt dollars in interest and late-fee payments. To enroll in a program for credit settlement rms may also be subject to a monthly fee that can range from card debt help, contact Advantage CCS. $20-100.