Debt Management vs. Debt Relief Companies: What’s the Difference?

2 Min. Read

When you’re overwhelmed by debt, two common paths can help you regain control: enrolling in a debt management plan through a non-profit credit counselor or working with a debt relief company that negotiates directly with creditors.

While these options sound similar, they differ in their structure, costs, and impact on your credit. We’re breaking down each approach side-by-side to help you decide which is right for your financial situation.

What Is a Debt Management Plan (DMP)?

Debt Management Plans are administered by non-profit credit counseling agencies. Think of it as a structured repayment plan that can make tackling your debt easier and more manageable.

A DMP works similarly to debt consolidation, combining all your unsecured debt (such as credit card bills) into a single balance. With a DMP, you’ll make a monthly payment to the credit counseling agency, and they’ll distribute payments to your creditors. The agency may also work with your creditors to negotiate lower interest rates and fees. A debt repayment plan typically lasts three to five years.

What Are Debt Relief Companies?

Debt Relief Companies are for-profit organizations that help you negotiate your way out of debt. This approach is also referred to as debt settlement.

The process involves the debt relief company negotiating with a creditor on your behalf to pay less than the full amount you owe. Typically, you’ll stop making payments during the negotiation. Debt settlement often involves a lump-sum payment instead of a restructured repayment plan—you’ll pay this amount to the company or firm and they’ll use it to pay the settlement.

In addition to your debt payoff amount, you’ll pay the debt relief company a fee equal to a percentage of the debt owed. Debt settlement doesn’t come with a fixed term; instead, it depends on the speed of the negotiation.

Key Differences: Debt Management vs. Debt Relief

Which Should You Choose?

• Debt Management Plan: A reduced interest rate and lower monthly payments can help you save money and having just one monthly payment can make the repayment process easier. Choose to work with a credit counseling agency on a debt management plan if you can afford to make smaller payments over time and preserving your credit is a priority.
• Debt Relief Company: Debt settlement can be an alternative to bankruptcy, especially if you’re already behind on payments. You may choose to work with a debt relief company if you need faster relief and can manage a hit to your credit score (a settlement will remain on your credit reports for seven years).

Next Steps to Tackle Your Debt

Both debt management plans and debt relief companies offer helpful ways to tackle overwhelming debt but keep in mind that they serve different needs. If you value predictable, lower monthly payments and want to protect your credit score, a DMP may be the right path. If you’re seeking a faster reduction in your total balance and can tolerate a credit hit, debt settlement may make sense.

Whichever solution you choose, a smart first step is to schedule a free budget review with a certified credit counselor. With the right guidance and a clear path forward, you’ll be back in control of your finances and on your way to peace of mind.