Compare options
A debt management plan repays everything you owe at a lower interest rate. Settlement pays less than you owe, at a real cost to your credit. We are not a credit counseling service, and for many people a plan is the better first call.
Who each option fits
Fits if
Watch out for
Fits if
Watch out for
Side by side
The same rows as our four-option comparison, plus the three that usually decide this pair: what gets lowered, what your creditors see, and taxes.
| What we compare | What we do Debt settlement | Debt management plan |
|---|---|---|
| What it is | We negotiate each debt down; you pay the settled amounts from an account in your name. | A nonprofit credit counselor arranges lower interest; you repay the full balance. |
| What it costs | The settled amounts plus our fee, charged only after a settlement is reached and shown as its own line. Forgiven debt may be taxable. | The full balance, usually with a small monthly fee. |
| How long | Most programs run 24 to 48 months. | Often 3 to 5 years. |
| Credit impact | Your score will drop during the program. | Usually a smaller dip; enrolled cards are often closed. |
| Who it fits | $10,000 or more of unsecured debt you can't keep up with. | You can repay in full if the interest comes down. |
| What it lowers | The amount you owe on each settled account. | The interest rate and the monthly payment. The balance stays. |
| Your creditors | Go unpaid while you save, so collection and lawsuits are possible. | Get paid every month, and often agree to stop late fees. |
| Taxes | Forgiven debt may be taxable income. | Usually no tax effect, because nothing is forgiven. |
If a debt management plan or bankruptcy fits you better, we will tell you so. Free nonprofit credit counseling is a good first call for many people, and we will point you there when it is.
A credit counselor reviews your budget and your debts first. If a plan fits, the counselor proposes a payment schedule to your creditors, who may agree to lower your interest rates or waive some fees (FTC, opens in a new tab).
You then make one deposit a month to the counseling agency, and it pays each creditor for you. The CFPB explains (CFPB, opens in a new tab) that the goal is a lower monthly payment, not a smaller balance.
A counselor reviews your income, spending and debts, and explains every option.
Each creditor decides whether to lower the rate or waive fees.
You pay the agency, and the agency pays your creditors until the balances reach zero.
A plan changes the terms: a lower rate, sometimes waived fees, a steadier payment. You still repay every dollar of the balance. Settlement changes the amount: each creditor is asked to accept less than you owe, once enough has built up in your account.
That is why the tradeoffs point in opposite directions. A plan keeps your accounts paid on time. Settlement lets them fall behind while you save, which the CFPB lists (CFPB, opens in a new tab) as the source of its biggest risks.
We are not a credit counseling service or a nonprofit. We negotiate settlements, and we are paid a fee that is 20 to 29% of your enrolled debt, depending on your situation and how you enroll, charged only after a settlement is agreed and the first payment to the creditor is made.
Settlement can cost fewer dollars on paper, because you repay less than the balance. A plan costs more dollars but spares your credit much of the damage.
| On $20,000 | Debt settlement | Debt management plan |
|---|---|---|
| You pay in total | $13,000 to $17,800, including the fee | About $24,330, plus any agency fees |
| Over | About 27 months | 60 months |
| Monthly | $481 to $659 | About $406 |
| Also consider | Credit damage, lawsuits, tax on forgiven debt | Full balance repaid; cards may be closed |
Settlement figures are illustrative2. The plan assumes creditors lower the rate to 8% APR over 60 months, before agency fees. Each creditor sets its own terms.
At the high end, settlement plus the fee comes to $17,800, not far below the balance, and interest, late fees, account fees and tax can add more. When that is the likely outcome for you, the plan may be the better deal.
A plan is often the gentler road, but it has real costs too. The NFCC lists them (NFCC, opens in a new tab): several years of payments, a setup fee and a monthly fee at most agencies, and closing some or all of your cards. Your score can dip at first, though the NFCC calls the long-term effect positive.
The NFCC says income-based fee waivers are available, so ask for every fee in writing before you start.
More often than most debt relief ads admit. A plan is usually the better road when:
If this sounds like you, start with a nonprofit credit counselor. The National Foundation for Credit Counseling can connect you with a member agency.
Ask the same hard questions you would ask us. The CFPB suggests (CFPB, opens in a new tab) asking about every fee in writing, how counselors are paid, and whether they offer more than a plan. The FTC warns (FTC, opens in a new tab) that nonprofit status alone does not make an agency free or legitimate.
Things you should know
Read these before you enroll anywhere, including with us. They apply to every debt settlement program.
Notes on the figures and claims above
No. A plan does not give you a new loan. You keep the same debts, at lower rates, and pay them through one monthly payment to the counseling agency.
You repay the full balance, which can take 48 months or more. Most agencies charge a setup fee and a monthly fee, and you will likely close the enrolled cards, which can lower your score at first. The plan also works only if you make every payment on time, and loans or secured debts usually cannot be included.
The NFCC and the FTC both list these costs. A plan can still be the better fit when you can afford the full balance at a lower rate.
Usually much less than settlement, because your creditors keep getting paid. You may have to close or stop using the enrolled cards, which can affect your score for a while.
Usually not. Nothing is forgiven, so there is no canceled debt to report. In settlement, forgiven debt may be taxable income.
Because a plan is the better fit for many people, and a program that is wrong for you helps no one. We are not a credit counseling service, so we point you to one when it fits.
Where the facts on this page come from. Each link opens the original in a new tab.
Next step
Check your state and see an illustrative estimate, fee included. If a debt management plan fits you better, we will tell you so.
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