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So unlike debt consolidation, you still have the same debts (with the same balances) but you negotiate for lower interest rates and, if necessary, lower monthly payments.People usually go to a “credit counseling” non-profit organization to get help starting a debt management plan.It can also allow you to get a lower interest rate and lower monthly payments than what you’re currently paying.

if you want to do a debt management plan with a credit counselor, ask them these important questions before you begin.

Instead, the debt settlement company waits until you have accumulated enough money in your escrow account to make a lump sum offer to settle your debts. Once you have enough money in the escrow account, the company will begin to contact each of your creditors (the banks and credit card companies that you owe money to) and attempt to negotiate a settlement where you pay some percentage of your outstanding balance as a lump sum in return for having the debt canceled. For example, if you owed ,000 on your Bank of America credit card, it might be settled for ,000. If the settlement offers are not accepted by your creditors (or very few of them) you will be months or years behind on your payments.

That’s the potential positive impact of debt settlement. Legally, the company must give you back the money in the escrow account if they fail to settle any of your debts.

With debt settlement, you are telling your creditors “Sorry, I can’t pay the entire amount I owe, but I can pay a fraction of it to you right now if you’ll cancel the debt.” As you can imagine, doing debt settlement will hurt your credit score pretty significantly.

It’s not something you should do before considering other options.

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