Debt Management vs. Debt Settlement: Which Is Better?

Debt management and debt settlement are two different forms of debt relief. Which is best for you depends on your circumstances.
Sean Pyles
By Sean Pyles 
Edited by Kathy Hinson
Debt Management vs. Debt Settlement: Which is Better?

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

MORE LIKE THISPersonal FinanceLoans

Are you debating between using debt management or debt settlement to pay off debt?

These options sound similar, but they're very different. One can help reduce your debt, while the other can create more trouble for you.

Debt management

A debt management plan from a nonprofit credit counseling agency rolls multiple debts into one with a single monthly payment and a lower interest rate. Repayment usually lasts three to five years, and you can’t generally open new lines of credit or use credit cards while on the plan.

These plans mainly address credit card debt and won’t cover other forms, such as tax debt, medical bills or student loans. You can sign up for a plan through a nonprofit credit counseling agency, and most are available over the phone or online.

Why you would choose it:

  • You have primarily credit card debt

  • You have more debt than you can handle on your own through debt consolidation

  • Your credit score doesn't qualify you for a balance transfer credit card or personal loan

  • You want the external discipline of a plan to keep you from adding to your balances

Track your budget, finances and credit
Make smarter financial decisions with the free NerdWallet app
NerdWallet News Ad

Debt settlement

Debt settlement is like playing a game of chicken with your creditors, but in the long run your finances always lose.

It works like this: You withhold payments until your account is severely delinquent, then ask the creditor to accept a smaller amount as full payment. The hope is that the creditor figures a lesser payment is better than none.

But settlement comes with a big downside: Your credit scores tank and you risk being sued by the creditor. Plus, there’s no guarantee the creditor will agree to settle.

You can try debt settlement yourself or hire a company, but that brings further risk: The Federal Trade Commission recently ordered 11 such companies to stop marketing, saying they took millions of dollars from consumers and provided little benefit.

Why you might choose it:

  • You have an account that’s already severely delinquent or in collections — so the credit score damage is already done — and you think the creditor might accept a partial payment

Find and move all your old 401(k)s — for free.
401(k)s left behind often get lost, forgotten, or depleted by high fees. Capitalize will move them into one IRA you control.
start consolidating

on Capitalize's website