If you're experiencing the weight of credit card and loan debt and are falling behind on payments, you may be considering debt relief solutions. Among your options are debt settlement and debt management, but they are very different approaches. How do you decide which is best for your situation?

Two important things to think about are how consistent your income is and how well you can weather a short-term, negative impact to your credit. Let's look at what else to consider:

What is debt settlement?

Debt settlement allows you to negotiate with creditors to pay off debt on delinquent, unsecured credit accounts and personal loans for less than you owe. Negotiating a debt settlement usually happens when you're several months past due on your payments.

Debt settlement is a good option for people who have the money to pay their creditors through a settlement plan that lasts no more than a couple years. If your finances are too tight for that, or your income isn't reliable, this may not be the right option for you.  

What is a debt management plan?

A debt management plan (DMP) is a sponsored repayment plan negotiated by a credit counseling agency that negotiates reduced interest rates on your unsecured debts and creates a payoff plan. This DMP requires that you make fixed monthly payments for up to five years. These payments go directly to the agency and they distribute them to each of your creditors enrolled in the DMP.

Keep in mind your monthly payments include a fee, which is usually nominal, and capped by your states laws.

Like debt settlement, you'll need consistent income to fulfill your DMP. If you haven't fallen behind on your payments-- or you've missed just one or two-- this is a good debt relief option to protect your credit.

Comparing the pros and cons.

Debt settlement can be quicker and cost less than debt management. Ideally, you'll complete debt settlement in no more than a couple years. A DMP can take up to five years, but it can be a better solution if you have more debt.

With debt settlement you'll be able to apply for credit cards, loans, and mortgages right after your last settlement payment, though you'll likely not qualify for the best rates available because of the missed payments while you were negotiating settlement. Keep in mind you're also at risk of being sued for payment while you're negotiating. And, of course, there are the collection calls.

With a DMP you avoid collection calls and the risk of being sued for all accounts included in your plan, but you'll be making payments for up to five years depending on your debt. However, a DMP has little impact on your credit.

A word of caution for DMPs: If you miss one payment, you're out of the program and your negotiated terms are nullified.

Which is right for you?

As you consider both options, take an honest look at the amount of your debt, your budget and your available funds/income. Identify short- and long-term financial goals and how your credit health will impact these.

If protecting your credit is a priority, speak with a credit counselor to see if you qualify for a DMP. Find a nonprofit credit counseling agency with counselors trained and certified by the National Foundation for Credit Counseling. Then set up a budget counseling session to get a quote of your payments, which should include any agency fees. This gives you the information you need to determine if a DMP will work for you.

If you'd like to resolve your debt faster and are not as concerned with the impact to your credit, or if you've already fallen behind on payments thus damaging your credit and want to repair it, start by assessing if settlement will work for you. Consider:

  1. Your balances. Some amounts are too small for settlement.
  2. Your creditors. Each company has its own approach to dealing with delinquent accounts and their policies change periodically.
  3. Your cash flow. Do you have the funds to settle all your debts within 18 months or, ideally, 12 months as this reduces the risk of being sued?
  4. Your budget. Can you pay your settlements on time and still pay your other bills?
  5. Additional funds. Are there other sources of funds, e.g., something you can sell, loans from family or friends, that you can access?

If debt settlement is the right option, you'll work with a debt settlement company to negotiate on your behalf or take a do-it-yourself approach and work directly with your creditors.

This article originally appeared on Resolve and was syndicated by MediaFeed.org.