Do I Really Have to Default on My Debts to Go Into a Debt Settlement Program? – Mark

“Dear Steve,

I’ve considered both the Debt Management and Debt Settlement routes, but was told that I must first default on all of my cards before pursuing the latter. This strikes me as an extraodinarily risky move to make (the default interest rate on most cards is astronomic). Is there any way to pursue Debt Settlement without first defaulting; or would I be better off going the Debt Management route?


Dear Mark,

No matter what you do in a debt settlement program it is going to result in negative marks on your credit report.

Creditors are not going to consider settling your debts for someone who is current. That’s why the settlement companies tell their clients to fall behind, trash their credit, and risk being sued. I can offer no better explanation other then it is a game that both debt settlement companies and creditors play. A game created for no good reason other than to comply with policies and procedures that creditors have on their books.

But both debt management and debt settlement will hurt your credit. In a debt management plan the accounts you include will be closed. The closure of those accounts can hurt your credit score. And in a debt settlement program, besides what I mentioned above, any debt forgiven in the settlement is going to be reported as a bad debt on your credit report.

The only solution that does not result in a hit to the credit report or credit score is to pay your debts as agreed or to pay them off in full. Outside of that the solution you choose is a balance between the situation you are facing and the most appropriate tool to deal with it.

I’d need to know more about your current situation to guide you further.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

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