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Debt negotiations (settlements) versus debt management; how to choose

Being in the credit field, I am always surprised just how many people don't know the difference between debt management and debt settlement (negotiations). I talked with a man the other day who had been feverishly searching for a good debt settlement company before he ran out of time, but as I was speaking to him, I realized he didn't have any money, so how was he going to settle his debts?

Debt settlement also referred to as debt negotiations is a method to settle your debts for less than what you owe. Debt settlement procedures can be very affective IF you know what you are doing and have some money. When you want to avoid bankruptcy and get out of debt AND you have some money set aside, you can negotiate with your creditors or use a debt negotiator to do it for you. Often they will offer 30-40% of the total debt to be considered as settled in full. This can cut the debt in half and consider it case closed. That means no more worrying about the creditors coming after you or worrying day and night about being sued or slapped with a judgment.

You must have money to settle your debts, otherwise there is no "debt settlement".

Many times the creditors will accept this, especially if you are in dire straights and they fear you may file for bankruptcy and they'd be left with nothing. A professional debt negotiator has long term relationships with many of the creditors and can work a deal for you, for a fee. You still walk away paying less, even with the fee. Another option to consider would be do it yourself debt negotiations. If you are equipped with knowledge and understand what it takes, you may be very successful in negotiating your own debts without paying a professional. That can mean even more money in your pocket.

Debt Management is an entirely different program. Credit counseling or debt management is used to cut your monthly payments to your creditors but you still pay the full balance. It's a good alternative if you are unable to meet your monthly obligations to your creditors and are falling behind.

A debt counselor can set up a program with your existing creditors and in essence "freeze collections" and reduce your monthly payment. This gives you adequate time to repay everyone without the worry of the accounts going into collections or being sued. A good debt management program will be a not for profit who will work as your counselor and do all the dirty work with the creditor. You simply pay one payment to the credit counseling firm each month and they disburse your payments for you to your creditors.

You can even get many creditors to agree to freeze the interest or remove late fees. Often they will also "suspend" credit reporting while you complete the program.

See more about debt management and the difference between it and debt consolidation.