 TITLE: Debt Settlement vs. Debt Management Programs: What’s the Difference? CONTENT: At first glance, debt settlement may seem like the better option. A debt settlement company has you stop paying your creditors as they negotiate a lower payment. Then, the debt settlement company pays the creditors on your behalf. Essentially, it seems like you save money and the debt settlement company takes care of getting the payments to your creditors for you.\nThe catch is that the lower payment they negotiate is lower than your full outstanding balance. This harms your credit score because you are not paying off the total amount. Typically with debt settlement, you only pay about 50% to 80% of the balance. Additionally, the debt settlement company does not pay your creditors while they are negotiating the lower payment, so you may begin to receive collection calls. The late payments then get reported to the three major credit bureaus (Experian, TransUnion and Equifax) and stay on your credit report for seven years. Regardless of whether your settlement is successful, your credit will be damaged.\nAlso, keep in mind if the debt is settled for less than the full balance, you may have tax implications because the debt that is forgiven will likely be reported to the IRS as income. Finally, you'll pay hefty fees for this service: You could be charged as much as 15% to 25% of the amount settled. END