Looking for suggestions……Which is least damaging to your credit a debt management plan or debt settlement?

A debt management plan through an accredited credit counseling service will normally attempt to negotiate reduced payments with your creditors in order to budget expenses that would otherwise exceed your income. This will normally have a negative effect on your credit because anytime a lender agrees to take a reduced payment the credit is not being paid as originally agreed. However, with a debt management plan it may still be possible (over a longer period of time) for the creditor to recover 100% of the principal and interest on the loan. Though it might hurt your credit, it would not hurt it to the extent of a settlement under normal circumstances.

A settlement is where the creditor agrees to take an amount that is less than the balance owed on the loan to settle the account. There will certainly be a loss to the creditor. By the time the creditor gets to the point of wanting to settle the debt they have probably already assigned it to a collection agency. A settlement will be more damaging to your credit than a debt management plan.

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