10 Debt Consolidation Myths #4: Debt Management vs Debt Settlement

Contributed by mm | August 30, 2006 1:23 AM PST

Bankrate has an excellent review of common misconceptions of debt management. Here is the next installment: Some Agencies Can Negotiate Lower DMP Payments Than Others.

A classic myth when you try to consolidate your debt. Don't mistake debt-settlement for debt management. Debt-settlement programs (hopefully) reduce your debt at the expense of damaging your credit report further.

From Bankrate:

That would be true if these debt-management programs involved negotiation. They don't. A majority of creditors have existing programs where they automatically shuffle off 95 percent of individuals enrolled in a DMP, says Greenberg.

If a counselor indicates differently, you are in the clutches of a debt-settlement program. This version accepts your monthly lump-sum payments, but holds that money until creditors scream. At that point, the debt-settlement personnel negotiate to repay cents on the dollar. Your credit rating gets maimed in the process.

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