Headline : Debt 101: debt settlement vs. debt consolidation vs. DMPs

Read more from the original article on here at fortune.com.

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Debt is common, with people increasingly using credit cards or loans to cover various types of expenses. Although credit can be convenient and helpful in many cases, it can easily get out of hand. According to the Urban Institute, the median amount of debt in collections — meaning the debt has been sold to a collections agency and may be incurring costly fees —  is $1,739 per borrower. 

If you’re struggling with high balances and interest rates, there are several ways to pay off your debt faster and save money. Three common strategies are debt management plans, debt consolidation and debt settlement. Although these approaches may sound similar, they’re very different from one another, and they’re not suitable for all situations. 

Debt settlement, which is often referred to as debt relief, is a process where a company is authorized to negotiate with your creditors to settle your debt for less than you owe. If successful, the savings can be significant; you could reduce your balance by as much as 50%, allowing you to save thousands. 

“If your accounts are up to date at the time you enroll in debt settlement, they’re going to tell you to force those accounts into delinquency, which is often a tactic they use to try to improve their negotiating position,” said Bruce McClary, senior vice president of membership and communications with the National Foundation for Credit Counseling. “But unfortunately, it’s your good credit rating and your finances that are on the line.”

Read more from the original article on here at fortune.com.

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