No two financial situations are alike. So, the debt solution that works for one person may not work for someone else. It’s crucial to find the best way out of debt to fit your needs.
Take debt management programs and debt settlement programs. Both solutions help people get out of debt faster. Both help credit users save money as they get out of debt. But they do it in different ways with different credit effects.
Let’s look at how each program helped a consumer who owed over $30,000 in credit card debt. These are real stories from real people who used these solutions. They illustrate how each solution works and what you can gain by using it.
Case #1: Mary Becomes Debt-Free and Buys a Home
Mary owed $30,440 to her creditors. She was keeping up with her payments—mostly. With so much debt, Mary was living paycheck-to-paycheck, meaning she was only making minimum payments and when things got tight she’d miss a payment here and there.
These missed payments and her high balances meant that Mary’s credit score had taken some hits. Her FICO score had dropped to 600. It wasn’t bad, but it wasn’t good either.
Mary just needed a solution that would minimize the interest rates applied to her balances so they were easier to pay off. But her credit score meant she couldn’t qualify for a debt consolidation loan.
Instead, Mary enrolled in a debt management program through a nonprofit credit counseling agency. They worked with her creditors to reduce her interest rates to just 6.7% and stop the penalties and fees that had been applied to her account.
This dropped Mary’s monthly payments by 35%. She went from paying $1,217 per month to paying just $794. That gave her the breathing room she needed in her budget.
Mary paid off her debt in full in just three years eight months. She saved over $13,000 in interest charges. Even better, the program didn’t hurt her credit. In fact, her score actually improved a few points during the program. Then once she completed it, she was able to take steps to boost her score quickly. This kept Mary on track to buy her first home three years later.
Case #2: Nole Recovers Quickly from Unemployment
In our second case, we look at Nole. He also owed over $30,000—$30,093 to be exact. Nole racked up all that debt during a period of unemployment. Without a job, he relied on his credit cards to pay his bills. But while that kept his rent paid and his lights on, he couldn’t pay the credit card bills.
By the time Nole found a new job, he was seriously in the hole. Three of his credit cards had been completely charged off and sold to collectors, while four more were months past due.
Nole was getting constant collection calls and even though he had a new job, catching up was proving to be almost impossible. His credit score was already down to 450, so Nole just needed a fast way out of debt. But he didn’t want to declare bankruptcy.
Instead, Nole found a debt settlement program. With a team of expert negotiators on his side, he was able to get out of debt for nearly half of what he owed. In fact, Nole only paid $18,548 in total—that’s just 55% of what he owed.
Nole was out of debt in 23 months. And even though those settled debts will stay on his credit report for seven years, that was already going to happen with the missed payments and collection accounts he had.
Nole didn’t mind the credit damage because he was out of debt and able to start rebuilding. Instead of fighting with collectors, he was able to focus on rebuilding his savings. And with a secured credit card and a credit builder loan, his credit score started to recover in just six months.
A Side-by-Side Comparison
| Mary (Debt Management) | Nole (Debt Settlement) | |
|---|---|---|
| Starting debt | $30,440 | $30,093 |
| Total paid | $34,628 | $18,548 |
| Time to payoff | 44 months | 23 months |
| Credit impact | Neutral | 7-year notations for each debt settled |
Finding the best solution for your needs
If you owe more than $10,000 on your credit cards and you can’t make any headway paying off your debt, one of these solutions could help. The good news is that there’s a company that connects you to both. Debt.com is a debt relief referral service. They have a network of accredited, top-rated debt relief services that can help people with any type of debt in any situation.
Debt.com connects people with the best debt solution for their needs, credit, budget, and goals. If you’re looking to get out of debt, this company can help. Call (800) 849-DEBT (3328) today for a free consultation and they’ll match you with the best solution for your unique financial situation.
