Debt Management Plan vs Debt Settlement – Comparison
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
Are you trying to decide between a Debt Management Plan and a Debt Settlement Offer? This can be a tough choice.
Over 170,000 people visit our website each month looking for guidance on decisions just like this one, so you’re not alone.
In this article, we’ll explain:
- What a Debt Management Plan is and how it works
- How a Debt Settlement Offer can help
- The pros and cons of each option
- How each choice might affect your job
- Tips on choosing the right option for your situation
We understand that you might be worried about the impact of each choice. Don’t worry; we’re here to help you understand your options and make an informed decision.
What is a Debt Settlement Offer?
A debt settlement offer (also known as a full and final settlement offer) is another debt solution which involves you paying a single large lump-sum payment to your creditors in order to take care of your debt(s).
Debt settlement offers tend to be accepted if creditors feel that it’s not worth it to keep recovering money from you in the form of instalments.
The lump sum of money can be less than the amount of money you actually owe. You can expect your creditors to write the remaining debt off but this is something that might have to be negotiated. You can choose to do this yourself or hire a debt settlement company to do it for you.
You could get the lump sum unexpectedly such as in the form of inheritance or by winning a lottery. Other sources of money such as from compensation, the sale of a valuable asset or a pension can also be used.
The money you produce for the debt settlement offer is distributed evenly among all the debts that you have. If you don’t have the money to cover all of your debts equally, then you can choose to settle specific debts.
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When you opt for a debt settlement offer, it gets logged in your credit file and has a negative impact on your credit score (just like all debt solutions).
The debt settlement offer appears as ‘partially settled’ in your credit file. This is to inform future lenders that the money that you owe was not repaid in full. The entry of the debt settlement offer stays in your credit report for six years after the date on which it was settled.
Opting for a Debt Settlement Offer with Multiple Creditors
If you’re opting for a debt settlement offer and have several different creditors, then you may find it confusing to distribute the lump sum payment among them.
You can choose to make one lump sum payment if all of your creditors agree.
This would involve you dividing the lump sum amount of money among your creditors based on how much you owe each creditor.
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly payments
A few debt solutions can even result in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want to learn what debt solutions are available to you, click the button below to get started.
Debt Management Plan vs Debt Settlement Offer; Which one is Better?
People often ask me this and I always say the same thing to them: there’s no one debt solution that is better than the other. It just depends on the kind of financial situation that you’re in.
Of course, it can be quite tricky to assess your financial situation and determine which solution would be best for you.
You can do this yourself by doing your own research or you could seek advice from credit counseling agencies. A credit counseling agency would look at your financial situation and help you figure out which debt solution would be best for you.
You can also go to an independent debt charity for advice such as Stepchange or Payplan. They will offer you impartial advice free of charge.
If you’re choosing between a debt settlement offer and a debt management plan, the factors to look towards are quite obvious: the amount of money you have.
For example, If you’re drowning in credit card debt and are only able to get a small surplus amount of income at the end of each month, then maybe opting for a debt management plan would be the right choice. That small surplus income could take the form of your reduced monthly payment and help you pay off your credit card debt.
On the other hand, if you’re unable to secure a substantial surplus income every month but were able to get your hands on a large lump sum of money such as by inheriting it, then a debt settlement offer is definitely something you should be thinking about.
