Rate Reduction

• You may be able to reduce your interest rates on your own by simply calling your credit card company and seeing what they can do for you. If you have a lot of credit cards with high balances, though, a debt management program can do all the negotiations for you. This allows you to dedicate more of your monthly payment toward your principal. The program also gives you a structured schedule for paying back your debts so you can become debt-free within five years.
  
  

Debt Settlement

• In a debt settlement, the interest rate is of no interest to you. Instead, your goal is to reduce the amount you owe on your cards. Doing this, however, can be a difficult process. The credit card company has no legal obligation to settle with you, so you'll often have to intentionally miss payments to build the necessary leverage to negotiate a settlement. If the credit card company isn't interested in a settlement, you may find yourself being harassed or sued.
  
  

Debt Reduction

• If you want to reduce your overall debt, debt settlement is an appealing option. The major downfall of a debt settlement is that you have no assurance it will work, which can have major ramifications down the line. Another drawback is that you do manage to settle your debts, you'll owe taxes on any savings you realized through the settlement process. On the other hand, you'll pay more through a debt management program, but you'll pay far less than you would if you just paid your minimum payments without any interest rate reduction.
  
  

Impact on Credit Rating

• It's impossible to evaluate the savings of a debt settlement program or a debt settlement without considering how it'll affect your credit. A debt management program has very little impact on your credit initially, but ends up helping you as you build an on-time payment history. Debt settlements, though, can quickly destroy your credit. The fact that you settled an account for less than its value is seen as equivalent to filing for bankruptcy; combined with all of the late payments on your file, a settlement can leave your credit in tatters for years to come. Even if you significantly reduce your debt in the settlement, the damage on your credit is the ultimate price you pay.