Start My Answer

Debt Management vs. Debt Settlement

Chloe Meltzer | December 13, 2023

Chloe-Meltzer
Legal Expert
Chloe Meltzer, MA

Chloe Meltzer is an experienced content writer specializing in legal content creation. She holds a degree in English Literature from Arizona State University, complemented by a Master’s in Marketing from California Polytechnic State University-San Luis Obispo.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Worried you'll never be able to pay off your debts? Find out if debt management or debt settlement is right for you.

When it comes to debt, there is never a situation that you hope to find yourself in. Whether that is student loan debt, credit card debt, or tax debt, paying off debt can be difficult and stressful. As debt piles up you might look for alternative options to get out of debt. Debt management and debt settlement are two different forms of debt relief. Although they are similar, they are not the same. It is essential to learn the difference between the two and decide what will work best for you.

Don't ignore debt collection lawsuits. File a response with SoloSuit.

Common Strategies to Get Out of Debt

There are a few main forms of debt strategies. Although this includes debt settlement and management, there are also other options as well.

  1. Debt Snowball. Focus on paying your smallest debt first. Continue to pay your minimum payment on other debts to ensure you do not go into default. After you pay that off, take this payment and begin to roll the amount into payments on the next debt. This will teach you how to make a consistent payment and allow you to learn to pay a larger payment as time goes on.

  2. Debt Avalanche. Pay off your debt that has the highest interest rate first. Continue to pay the minimum payments on all of your other debts, but be sure to take care of the one with the highest interest first. This will save you money over time in interest.

  3. Debt Consolidation. When you have multiple debts, debt consolidation is a good option. Essentially it allows you to combine multiple old debts into one single payment. Typically the hope is that you will have one loan at a lower interest rate. This will make your payments more manageable, and it should allow you to pay off your debt faster. There are a variety of debt consolidation methods, including balance transfer cards and personal loans.

  4. Debt Management Planning. If you are facing a huge amount of debt and haven't been able to make much of a dent, then a nonprofit credit counseling agency may be able to help. This involves setting up a debt management plan which should cut your interest and put you on a plan.

  5. Debt Settlement Companies. Hiring a debt settlement company is expensive, but is a better option than bankruptcy. Typically they will help you lower your overall debt payment so you can pay it off as soon as possible.

Use SoloSuit to respond to debt collectors in 15 minutes.

Debt Management

Debt management programs are administered by nonprofit credit counseling companies. When comparing debt management programs to debt settlement companies, imagine debt settlement companies as a corporation, and debt management programs as a non-profit organization.

Work With the Company

When it comes to a debt management program, you will work with a credit counseling company. They will work with you to negotiate your debt to reduce interest rates and fees. Sometimes you may also be able to negotiate lower payments.

Pay Your Debt off Slower

Instead of reducing the overall amount, you will simply be able to pay it off slowly. Essentially they help you pay off your debt in a manageable way. This ensures that your credit score is not impacted, and you will not suffer financially in other ways.

Improve Financial Planning Skills

Credit counselors look to teach you how to improve your financial planning skills. They can also teach you how to budget, and stay on track in the future.

Who Should Choose Debt Management?

You may want to choose a debt management program over a debt settlement company if:

  • You suffer from primarily credit card debt
  • You have more debt than you can handle through debt cons
  • Your credit score does not qualify you for a balance transfer credit card
  • Your credit score does not qualify you for a personal loan
  • You want a plan to help you avoid adding more to your debt

Protect your property by filing a response with SoloSuit.

Debt Settlement

When first examining your options, debt settlement may seem like the better option. Debt settlement companies typically tell you to stop paying off creditors and debt collectors while you negotiate a lower payment. The next step involves the debt settlement company paying the creditors on your behalf.

The Downside of Debt Settlement

Debt settlement typically only has you paying about 50% to 80% of your total debt balance. Although you might feel like this will save you time and money there is one major issue with this. The lower payment that was negotiated by the debt settlement company will be lower than your full outstanding balance. If you do not pay your entire debt, then your credit score will drop.

It is also good to note that debt settlement companies don't work for free. Typically you will be charged as much as 15% to 25% of the amount settled.

You Might Be Sent to Collections

Because debt settlement companies do not pay creditors while negotiating, you may also receive collection calls. This means that you will be late on your payments, which gets reported to the three major credit bureaus (Experian, TransUnion, and Equifax). This form of negative credit information stays on your report for seven years. Whether your settlement is successful or fails, your credit will be damaged.

Tax Implications for Debt Settlement

When it comes to a debt settlement, you need to be careful. If you have settled for less than the full balance, you can also suffer from tax implications. This is because the debt that is forgiven will be reported to the IRS as income. You will need to pay income taxes on the money that you were forgiven for.

Who Should Choose Debt Settlement?

If you have an account that is extremely delinquent and in collections, you may want to choose a debt settlement company. This is because your credit score is most likely already very damaged, and there is no reason why this can hurt your score further. You may also choose this plan if you believe the creditor will accept a partial payment. Although you may not be able to fix your score, you may be able to at least pay less of the debt overall.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

Respond with SoloSuit

"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James


Get Started


>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Settle your medical debt

Having a health challenge is stressful, but dealing medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Federal debt collection laws can protect you

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Get debt relief in your state

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt state guides

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote a guide on each state’s statutes. Check it out below.

Statute of Limitations on Debt Collection by State (Best Guide)

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources