What is the difference between a Debt Settlement Program and Debt Management Plan

Q. What is the difference between a Debt Settlement Program and Debt Management Plan (DMP)?

A:Debt Management

In a debt consolidation programs, also known as a Debt Management Plan (DMP), you pay back 100% of your debt plus interest. Interest is commonly reduced to the 8% to 10% range. Additionally, Most Debt Management Companies have a monthly service fee tacked on to your monthly payment. Most people pay back about 130% of their debt over 5 to 6 year period. Debt Management has a moderate affect on a good credit file and will improve most poor credit files.

Debt Settlement

In a Debt Settlement program, most pay back an average of 40-50% of their total debt, including all agency fees as well as accruing fees and interest. This 40-50% figure is based on your starting balances.

In some cases, where a client has very challenging creditors combined with a good income, liquid assets, etc., Certified Debt Specialists may end up with what they consider to be a less than perfect result and pay back may be in the 60% range. This is still a substantial savings for most clients and proves to be an effective program.

Also, the contrary is true. Certified Debt Specialists often are able to obtain total settlements including fees in the 40% range when the factors are just right.

Most clients are able to liquidate their debt in 2 to 3 years vs. 5 to 6 years in the DMP and the monthly payment is commonly smaller than a Debt Management Payment for the same debt.

Debt Settlement has a major impact on good credit but will improve credit for people that are 6 months or more past due. This improvement in credit profile is caused by bringing outstanding balances down to a ZERO balance
From "International Association of Prefessional Debt Arbitrators"