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If you've tried lots of different get out of debt systems, only to find yourself deeper in debt every month, then you're not alone, and it's quite likely that you are not to blame for the systems not working.
In many cases the interest and fees on credit cards and other loans are higher than available income, meaning that the only way to really impact the debt would be to either get the interest and fees lowered, or to not only get them lowered, but to get the total amount of debt reduced as well.
And the above is in essence the difference between debt management and debt settlement, and which would be right for you depends very much on your personal situation.
It should perhaps be mentioned here that debt management and debt consolidation are often confused too, but they are totally different, because whereas debt consolidation involves taking out an equity loan and paying off all one's debts with it, debt management does not involve taking out a new loan, but only a restructuring of one's debts.
Debt Management Explained
In order to be accepted into a debt management plan, the applicant needs to have not just a steady income, but also some income to spare after covering his or her living expenses, money that will be used to make a regular payment to the creditors.
A debt advisor, and we'd stress only one that works for a BBB (Better Business Bureau) company, contacts every creditor with the probable exception of the one holding your mortgage, and arranges a reduction of interest rates and fees.
Upon completion of the negotiations, the debtor has a set sum deposited into an escrow account every month and every creditor is paid from it, and although the effect on ones credit rating should be minimal, it will be downgraded, since any restructuring of debt involves a lowering of one's credit score.
Debt Settlement Explained
Debt settlement is for those that wouldn't have enough to meet the one monthly payment required for Debt Management, even after both the interest rate and the fees had been reduced, meaning that the actual amount of one's debt needs to be reduced.
Creditors obviously don't like doing this, and the debtor will normally have to be several months behind on his or her payments, and the creditor will need to be convinced that the only alternative to Debt Settlement is bankruptcy.
How much your credit rating will be affected by taking the debt settlement route will largely depend on how good or bad your credit score is before you do it.
If your present score is bad to terrible then debt settlement won't effect it much, but if it's excellent then it will take a very big hit.
A few bad apples have got the debt settlement business some bad press in the last few months, but the business is not a new one and right now over $20 billion dollars in consumer debt is currently involved in debt settlement programs.
The Association of Settlement Companies (TASC), which is the professional association for the debt settlement industry, has several hundred member companies that are carefully scrutinized, and if you go with a Debt Settlement company that's BBB recommended then there should be little to fear.
Debt Settlement is extremely labor intensive because deals with creditors often have to be reworked several times, since lenders are not the slightest bit interested in your deals with other creditors, but only in what's in it for them.
The debt settlement company is therefore forced to return to every creditor that previously agreed with a deal, and present them with a new one based on the last deal made, and it can only provide you with final contract when a deal has been made with every company that's willing to participate.
Some companies claim, and probably sometimes get a 50% reduction in debt, but this is more than likely a best case scenario and 40% would be good to excellent, and regardless of what you're promised, be prepared for the process to take months and not weeks, during which time you'll get harassed on the phone, in letters and by debt collectors wanting their pound of flesh.
