A reader has serious debts, but he also has a new job with a big salary.

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Question: It took me a minute, but I figured out the difference between debt SETTLEMENT and debt MANAGEMENT. Now I’m not sure which one to use to get rid of everything I owe. 

Here’s the deal: I owe around $45,000 on a bunch of credit cards, which I ran up a couple years ago when I was between jobs. Now I make six figures, but I’m not making much of dent on those cards. The interest rates range from 18 to 22 percent, which is killing me.

I’ve seen examples of debt settlement with amounts as high as I owe, but I don’t think the people who are $45,000 in debt make as much as me. Also, I want to buy a house in the next couple years, since I got this good salary and the job seems really stable. So I don’t want to settle my debt and then get a crappy mortgage rate.

How do I decide this? What are the factors to consider?

— Paul in Wyoming

Steve Rhode answers…

The differences between debt settlement, debt relief, and debt management are some of the most common questions posed to Debt.com experts. In fact, Debt.com’s chairman Howard Dvorkin has answered this same question several times…

It’s unfortunate these very different things sound so similar, but in Paul’s case, the question is a little different. It boils down to this: “How much do you consider income when it comes to getting rid of debt?”

It matters a lot. Debt settlement is intended for dire circumstances. Let me tell you a sad story…

[Get Out of Debt expert Steve Rhodes]

Hi, I’m Steve Rhodes, the Get Out of Debt Guy.

There is a time for debt settlement, and here is an example of when it worked amazingly well. I once had a client. He had $40,000 of debt that he couldn’t pay. He called the bank but the bank wouldn’t give him any help.

If he had gone for the offer that the bank came up with, he would have cleaned out his 401 (k) and had no retirement. He was able to settle that debt for half of what the banks wanted. If you struggle to make payments and are not good with finances like most of us, then having somebody else manage those finances for you and deal with the banks can be a real benefit.

You want to talk to a professional who knows what they’re doing, who can develop a plan that fits within your budget. Who allows you to continue to save, move toward retirement, and deal with your debt in a healthy, productive, stress-free way.

In this instance, a man endured a personal tragedy that demolished his finances. Debt settlement was literally the only path to preserving his financial future.

Paul’s situation is very different. Even though he owes slightly more than the man I mentioned above, he might not need such a powerful tool as debt settlement. Let’s break it down.

Bankruptcy

It’s important to not limit your options when dealing with debt. A solution you may not initially consider, like bankruptcy, may be a much better fit depending on your overall financial situation. It may be less expensive to put in place, make more sense with your financial goals, and help you build a larger retirement savings plan. This is why it is always good to talk to an expert.

Debt settlement

As you can learn in Debt.com’s report Debt Relief Programs Pros and Cons, “There will be a 7-year negative remark on your credit report for every debt settled.”

That’s a big drawback for Paul since he wants to buy a house within a couple of years. As that Debt.com report explains, “Settled debts look bad to lenders, so it can make it harder to get approved for loans and new lines of credit.”

So that’s a last resort.

Debt management

A debt management program is a much better bet for Paul. You can read more at Debt Management Program Pros and Cons. The “cons” are mostly short-term inconveniences for long-term benefits, which suits Paul just fine. He seems willing to sacrifice now to prosper later.

A DMP, as it’s called, will cut his monthly payments by 30 to 50 percent, and since he makes a good living, he’ll make quicker progress paying off what he owes.

Regardless of his options — and there are others — the best place to start is with a free debt analysis from a certified credit counselor who works at a nonprofit agency. Debt.com can hook up Paul and anyone else, regardless of their salary.

Steve Rhode is known as the Get Out of Debt Guy and has appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice.

Meet the Author

Steve Rhode

Steve Rhode

Expert contributor

Rhode has been writing since founding a nonprofit in 1994 to help people get out of debt.

Ask the Expert, debt management program, debt settlement

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Article last modified on September 13, 2018 Published by Debt.com, LLC .