Debt Management Vs. Debt Settlement: Which Is Better?

By Melissa Cook Reviewed by Nima Vahdat Updated Mar 20, 2024
Debt Management Vs. Debt Settlement: Which Is Better?

If you’re facing difficulty making timely debt payments, or are contemplating bankruptcy, then these options may be beneficial.

Debt has remained a consistent factor in the U.S. economy for the past decade. 

According to The Federal Reserve Bank of New York’s Center for Microeconomic Data Quarterly Report on Household Debt and Credit, total household debt in the third quarter of 2023 rose by $228 billion, representing a 1.3 percent increase, reaching a total of $17.29 trillion. 

Navigating the world of debt relief can, however, be overwhelming, especially when faced with multiple options for improving personal debt load. 

Debt management and debt settlement are two of the most common debt relief options. Both strategies offer paths to debt freedom, but understanding their differences and choosing the right approach for your situation, needs, and goals is crucial. 


  • Debt management plans (DMPs) focus on repaying debts in full through structured repayment schedules and negotiated interest rates.
  • Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed, providing a faster route to debt relief but with potential consequences.
  • Choosing between debt management and debt settlement depends on factors such as financial goals, debt amount, and individual circumstances.

Understanding Debt Management

Debt management involves structured programs designed to help individuals repay their unsecured debts ―usually credit cards— in full over a specified period. 

Through debt management, participants work with consumer credit counseling agencies to create a budget, negotiate lower interest rates with creditors, and roll multiple debts into a single monthly payment.

Credit counseling agencies like Money Management International (MMI) and the National Foundation for Credit Counseling (NFCC) are nonprofits that offer assistance to individuals struggling to manage debts but aiming to steer clear of bankruptcy.

How Debt Management Works

Participants in a debt management program (DMP) make monthly payments to the credit counseling agency, which then distributes funds to creditors on their behalf. 

Creditors may agree to lower interest rates and waive certain fees as part of the negotiated repayment plan. Debt management can have a neutral or positive effect on your credit score.

Enrolling with a credit counseling agency not only grants access to a debt management program but also entails personalized financial coaching. This includes guidance on budgeting, responsible money management, and strategies for securing a stronger financial footing.

DMPs typically span three to five years, sometimes more, allowing individuals to gradually repay their debts and regain financial stability. 

Debt Management: Pros And Cons


Structured Repayment Plan with Manageable Monthly Payments: DMPs provide participants with a structured roadmap for debt repayment, making it easier to manage finances. By consolidating multiple debts into a single monthly payment, individuals can better organize their finances and avoid missed payments.

Lower Interest Rates and Waived Fees Negotiated with Creditors: One of the significant benefits of DMPs is the ability to negotiate lower interest rates and waived fees with creditors. Credit counseling agencies work on behalf of participants to reach agreements with creditors, resulting in reduced overall debt burden.

No Damage to Your Credit: Participating in a debt management plan does not harm your credit. Instead, it can aid in building or rebuilding your credit history. All payments made under the plan are credited in full to your accounts over time. Therefore, if you have a history of late payments or high debt levels, debt management offers an opportunity for a clean slate and a fresh start.

Ongoing Guidance and Support from Credit Counseling Agencies: Participants in DMPs receive ongoing guidance and support from credit counseling agencies. These agencies offer financial education, budgeting assistance, and personalized advice to help individuals stay on track with their repayment goals.


Requires Full Repayment of Debts: Unlike debt settlement, which may involve partial debt forgiveness, DMPs require participants to repay all of their debts in full. This can take several years longer than debt settlement, depending on the total amount owed, potentially prolonging the journey to debt freedom.

Limited Flexibility in Negotiating Debt Terms: While DMPs offer benefits such as lower interest rates and waived fees, participants have limited flexibility in negotiating debt terms compared to debt settlement. DMPs adhere to predetermined repayment plans negotiated with creditors, offering less room for personalization.

Inclusion in a DMP May Impact Credit Scores Initially: Enrolling in a DMP may initially impact participants’ credit scores, as creditors may report accounts as “enrolled in credit counseling” or “paid through credit counseling.” However, making timely payments and successfully completing the DMP can slowly lead to credit score improvement over time as debts are paid off.

Understanding Debt Settlement

Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed, also known as a discounted payoff (DPO). 

This approach aims to provide faster debt relief by offering creditors a lump-sum payment or structured settlement amount.

Debt settlement offers the advantage of eliminating debts without requiring full payment of the balance. While this can be an appealing alternative to bankruptcy, it does come with the downside of negatively impacting your credit history. Also, you risk being sued by the creditor.

How Debt Settlement Works

To be eligible for debt settlement, you must demonstrate financial hardship, often by falling behind more than 90 days on your accounts. 

When you’re behind on payments, creditors might be open to collaborating with you to find a solution and recover some of the owed funds.

You can initiate this process by contacting your creditors and proposing settlement offers. 

They may accept, reject, or counteroffer. Once an agreement is reached, you’ll make payments, either as a lump sum or in installments. Settlement wipes out the remaining balance, but may result in account closure and credit score impact. 

If you’re not comfortable with negotiating debt settlement yourself, hiring a debt settlement company like Americor is an option.

Debt Settlement: Pros And Cons


Potential for Significant Debt Reduction: Debt settlement offers the potential for substantial debt reduction, often allowing individuals to settle their debts for less than the full amount owed. Negotiating with creditors or debt collectors can result in significant savings, providing a faster path to financial freedom.

Faster Route to Debt Relief: Unlike traditional repayment methods, which may take years to fully repay debts, debt settlement offers a quicker route to debt relief. By negotiating settlements with creditors, individuals can resolve their debts more efficiently and move towards a debt-free future.

Opportunity to Avoid Bankruptcy: Debt settlement provides an alternative to bankruptcy, allowing individuals to avoid the long-term consequences associated with bankruptcy filings. By settling debts for less than the full amount owed, individuals can achieve financial freedom sooner and regain control of their finances.


Adverse Impact on Credit Scores: Debt settlement can have a negative impact on credit scores, as settled accounts may be reported as “settled” or “paid for less than the full amount.” This negative notation can remain on credit reports for several years, affecting creditworthiness.

Potential for Tax Consequences on Forgiven Debt Amounts: The forgiven portion of settled debts may be considered taxable income by the IRS, potentially resulting in tax consequences for individuals. It’s essential for individuals considering debt settlement to understand the potential tax implications and plan accordingly.

Involves Negotiation with Creditors, Which May Result in Creditor Harassment or Legal Action: Negotiating debt settlements with creditors or debt collectors can be challenging and may result in creditor harassment or legal action. Individuals considering debt settlement should be prepared for potential challenges and seek professional guidance to navigate the process effectively.

Choosing Between Debt Management And Debt Settlement

When deciding between debt management and debt settlement, it’s essential to consider your financial goals, debt amount, and individual circumstances. 

Debt management plans are ideal for individuals who can afford to repay their debts in full over time and prefer a structured repayment plan with lower interest rates. 

On the other hand, debt settlement may be more suitable for individuals facing significant financial hardship and seeking a faster route to debt relief, even if it means settling debts for less than the full amount owed.

Conclusion About Debt Management Vs. Debt Settlement: Which Is Better?

In conclusion, both debt management and debt settlement offer viable paths to debt relief, each with its advantages and disadvantages. 

Ultimately, the best approach depends on your financial situation, goals, and willingness to commit to a specific repayment plan. 

By understanding the differences between debt management and debt settlement and seeking guidance from reputable debt relief professionals, you can make an informed decision and take steps toward achieving financial freedom.

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!


Melissa Cook

Melissa has a degree in English and marketing from University of California Irvine. She is a creative and accomplished content writer and editor with comprehensive experience developing rich, compelling content for a variety of websites. With her expertise in writing a broad range of content, combined with outstanding interpersonal skills and commitment to exploring innovative ideas, Melissa has done an excellent job developing content for blogs, articles, social media, and the company website. When she is not writing, Melissa spends most of her time cooking, traveling the world, and catching her favorite Broadway shows.