Debt Relief: Settlement vs. Making Minimum Payments

Debt Relief: Settlement vs. Making Minimum Payments

Juggling multiple debts, in addition to paying for your other living expenses and bills, can be incredibly difficult to handle. If your funds are already stretched thin, you may only be able to make minimum payments toward your debts every month. While this can satisfy your creditors and maintain your credit score, it can take years to pay off and cost you much more in interest. 

A debt settlement program could help to cut your debt in half, but is it worth pursuing? Let’s compare the key aspects of a debt settlement program and a minimum monthly payment strategy so that you can determine what’s best for you.

Total Repayment and Interest Rate

Each credit card calculates their minimum payments differently. You can find details on how your payment is calculated on your cardholder agreement or by contacting your credit card issuer directly. While the minimum may look small on each monthly bill, it adds up over time. 

Many borrowers who stick with minimum payments end up paying more in interest than their principal balance. You might see this illustrated on your card statement’s minimum payment warning box. This sample Wells Fargo statement, which lists a balance of $2,123.77, shows this box on the middle of the page, which warns that if the client only pays their minimum monthly payment, it would take about five years to pay off. When interest is calculated, they’ll pay about $5,383 total – that’s more than double the amount of the statement’s balance!

Credit Card Balance Example - Minimum Monthly Payments

Debt settlement programs don’t come with interest rates, and they aim to cut the amount of debt that their clients are responsible for. Accredited Debt Relief’s team of negotiators work with their clients’ creditors directly to settle their debts for less than what they owe. While results do vary, Accredited Debt Relief’s clients can receive settlement offers with a debt reduction of 50% or more.

Monthly Payments

Paying the minimum amount on one bill may seem manageable, and resorting to minimum monthly payments for a short period of time can help keep extra cash in your pocket when you really need it. However, relying on minimum payments long-term isn’t a good idea at all. In addition to racking up more interest, this approach does little to reduce your principal balance.

Because Accredited Debt Relief’s debt settlement program works to reduce the total amount of debt they owe, their clients pay much less. While our Client Success Team creates a custom deposit plan to fit their needs, clients can receive deposit plans that are about 50% less than what they were previously paying their creditors every month. This means that they get to experience payment relief in real time while also overcoming their debts for less in the long run.

Time Investment

While timing can vary depending on your unique financial situation, sticking with minimum monthly payments is usually the slowest approach you can take to tackling your debt. More time spent carrying your debt means that more interest will be piled onto your initial balance, which then adds more time to your repayment schedule.

MarketWatch illustrates this dilemma with the following example: let’s say that you have a credit card balance of $2,000 with an 18% annual rate. The minimum payment on this card is 2% of the card’s balance or $10, whichever is greater. If you stick with the minimum, it would take a total of 370 months to pay off!

Since debt settlement programs work towards cutting your principal balances and your accrued interest, they can allow you to pay off your creditors faster. Most debt settlement programs take one to four years to complete, and many of Accredited Debt Relief’s debt settlement clients complete their programs in 12 to 48 months.

Guidance from Debt Specialists

One major factor you’ll want to consider when choosing a debt repayment strategy is whether or not you want to handle it all on your own. Choosing to stick with your minimum monthly payments doesn’t come with extra help, so you’ll need to proactively research and experiment with different ways to improve your finances.

Accredited Debt Relief’s debt settlement program includes access to our Client Success Team, who can provide you with assistance throughout the course of your program. Our team is available to help our clients seven days a week through live chat, phone or email. Clients also have access to financial tools and resources in their Client Portal, which can help guide them as they progress through their program and after they’ve overcome their debt.

Comparison Chart Accredited Debt Relief vs. Minimum Payments

Choosing What’s Best For You

Everyone’s finances are unique. A debt solution that works for you might not be the best strategy for your neighbor. It’s important to research all debt relief options thoroughly before committing to a particular plan.

For most people, making minimum payments over a long period of time does more harm than good. If you’re ready to take a different approach to your debt, Accredited Debt Relief is ready to provide you with a risk-free consultation