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The important differences between debt settlement and debt management can mean thousands of dollars for your financial future. Also, choosing the correct method of financial help for your situation has implications for your credit and long term financial history. To help you in an informed decision, some of the main differences between debt settlement and debt management are detailed below.

1. Debt settlement attempts to reduce the principal amount of your debt. Debt management attempts to reduce your month by month payments on your debt.

Choosing debt settlement is usually the best option if you have a large lump sum of debt or debts that are completely insurmountable. Usually debt settlement is much harder to qualify for, and there is usually a minimum amount that you must be in debt before debt settlement companies will consider working with you. This amount is $10,000 for most companies, although some can be as low as $5000. Debt management is the better option if you expect a financial change in the near future, such as a medical expense or a period of unemployment.

2. Debt settlement will affect your credit more adversely. Debt management will have a negative effect on your credit, but it will not be as pronounced.

Because debt settlement will only be providing your creditors with a percentage of the money you owe, the trade off is a worse effect on your credit history than debt management. With debt management, you will still be reported as delinquent if your payments are late, but does not have the immdiate, heavy effect that debt settlement will have on your credit history.

3. Debt settlement companies require proof of immediate financial hardship. Debt management companies do not necessarily require this, although it does help when a company is choosing the cases to prioritize.

Before a creditor will accept a partial payment on a debt owed, it must reasonably believe that it is in risk of receiving nothing on the debt. Since these companies would rather have a partial payment than none, they are more likely to settle, although they always retain the right to refuse debt settlement. You would probably have to miss a number of monthly payments as well as show proof of immediate financial hardship. Debt management companies are not as stringent with these requirements, although some companies still require proof of some future major financial event before they will consent.