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Credit Counseling Vs Debt Consolidation

Why Choose Consumer Credit Counseling Services

Credit Counseling 101: Debt Management VS Debt Settlement

Here are the main benefits of credit counseling:

Get professional assistance Do-it-yourself solutions, while worth exploring, are tough to accomplish. You can try to lower your own interest by speaking with your creditors, but a credit counseling service will lower your high-interest debt. Your high-interest credit card debt is just the kind of problem that credit counseling works best on. The Consumer Credit Counseling Service will give you a defined plan, so you know exactly when you will be debt-free if you follow the plan.

Reduce your stress: Working with a quality Consumer Credit Counseling Service will reduce your stress. You will benefit from the free financial and budget review.

Protect your credit score: If your score is too low to qualify for a debt consolidation loan or balance transfer, and you don’t want to harm your credit score, consider a debt management plan. Make sure that no payments are missed in the initial phase when your DMP is getting set up.

Create an affordable payment: You have a good income, are making your payments on time, and may even reduce the required monthly payment slightly in the DMP. Not being able to afford the monthly payment is the biggest cause of dropping out from a Consumer Credit Counseling Service. As many as 75% of customers enroll drop out, mostly due to committing to a payment that they can’t make.

Do I Have Any Other Options

So long as you have income that you aren’t putting towards your basic monthly expenses, you probably have other options for getting out of debt trouble, including:

  • creating a budget and contacting creditors yourself to arrange a solution, like a reduced interest rate, a lower minimum payment, or the removal of late penalties or other fees
  • settling your debts for less than you owe on your own or with the help of a legitimate credit counseling agency or lawyer , or
  • Trade
  • Self-help services may not be permitted in all states. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Your use of this website constitutes acceptance of the Terms of Use, Supplemental Terms, Privacy Policy and Cookie Policy. Do Not Sell My Personal Information

    What To Know About Credit Counseling

    To protect your interests, here are some things to look for in a credit counseling agency:

  • Look for non-profit organizations
  • Charge no minimum fees
  • Have certified counselors
  • Are a member of one of the trade associations: either Financial Counseling Association of America or the National Foundation for Credit Counseling
  • At American Consumer Credit Counseling , our certified credit counselors will work with you to provide the best, personalized, options for managing your credit card debt. For many consumers, joining a debt management program is the best option to pay off their debt. So where does debt consolidation come into play?

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    What Is The Difference Between A Non

    Certified Credit CounselingFor-Profit Debt Relief Companies
    • Usually performs an in-depth analysis of your financial situation and makes recommendations to help you resolve your debt and finances.
    • Usually attempts to enroll you into a pre-defined debt settlement plan, refers you elsewhere, or declines your enrollment into its program with little analysis of your individual circumstances.
    • Usually works with your creditor to create a repayment plan that avoids or minimizes adverse consequences. the credit counselor may be able to negotiate concessions such as waived fees, reduced interest and stopped collection activity.
    • Often directs you to stop paying creditors in order to accumulate funds for debt settlement faster. Debt relief companies usually negotiate a debt settlement for less than what you owe a creditor. Debt relief companies may direct you to send a cease and desist notice to stop collection activity.
      • Debt relief companies may not disclose or may minimize the impact of their plan upon your credit report and tax situation. Debt settlement may involve debt forgiveness, which may have tax implications.
        • Debt relief companies charge fees often based upon percentage of savings. Some debt relief companies require payment of its fees prior to distribution of funds to creditors. There are some eligibility requirements so some customers may not receive assistance if they do not qualify.

        Who Is It Useful For

        Credit Counseling vs. Debt Consolidation

        Since one of the perks in consolidating debt is to reduce the amount of interest paid along with lowering the monthly payment, consumers who qualify for a low rate on the new loan or credit card stand to benefit the most from this strategy.

        Also consumers who can manage their payments on their own and are confident they will pay the new loan on time are good candidates for debt consolidation. It is not a good strategy if you are likely to run into trouble with the new loan.

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        Use Financial Hardship Programs

        Federal student loans offer income-based repayment plans.

        Under these plans, your monthly payment is limited to a percentage of your monthly income, making it easier to handle.

        You might also be eligible to apply for loan deferment and forbearance.

        When you defer your loan, you wont be required to continue making payments on it. Just remember that the loan will continue to accrue interest during this time.

        Forbearance also lets you postpone repayment for several months.

        How To Find A Reputable Credit Counseling Service

      • Check with the Minnesota Department of Commerce to see if a credit service organization is registered or if a debt management company is licensed.
      • Find out if the counseling agency is a member of a major association, such as the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Affiliation with these organizations ensure that the member agencies meet certain quality and ethical standards and that the credit counselors receive proper training.
      • Choose an agency that offers free face-to-face counseling sessions to discuss your spending habits, arrange a budget and help you handle your personal finances. Signing up for consumer credit services or a debt reduction plan over the phone or the Internet puts you at risk for losing money to a fraudulent enterprise.
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        How Do Nonprofit Credit Counselors Work

        Most nonprofit credit counseling agencies offer counseling online, by phone or in person.

        The counselor will review your overall financial picture, including income, bills, debt and other obligations such as child support. Taking this information into account, the counselor will help you decide on a plan to deal with your debt. The counselor also can help you create a realistic household budget that includes debt repayment.

        If you qualify for a Debt Management Plan , the value is in your hard-earned money going toward paying down your debt in a responsible manner. Using a DMP, your payment is going toward your debt and continuously chipping away at the balance, rather than toward a percentage cut a consolidator may take from you.

        A DMP does not come without some credit history impacts, however, but they are preferable to a situation in which you dont repay your debt and experience a charge-off. When you enroll in a DMP, your accounts are revoked, which means they are permanently closed. This could be viewed as a negative event by lenders, because the creditor closed them upon agreement to using a DMP. On the other hand, the benefit to a DMP is that youre less likely to experience a charge-off of your accounts since you are making on-time, acceptable payments to your creditors. The same cannot be said for debt settlement companies, in which the consolidator may allow the account to charge-off before reaching out to creditors on your behalf.

        Pros Of Declaring Bankruptcy

        Debt Management vs Debt Settlement vs Debt Consolidation

        Bankruptcy can eliminate debts that you cant afford to pay. Unlike debt management plans, which generally consolidate debt and reduced interest payments, bankruptcy settlements discharge principal. For those with debts too large to manage, eliminating debt might be the only solution.

        Here are pluses to consider:

        • Doesnt require creditor approval. In bankruptcy court, a judge decides how much creditors will receive based on the petitioners assets.
        • Chapter 7 clears away all unsecured debt including credit card balances, personal loans and medical bills,
        • The strain of debt is eliminated. Creditors and collection agencies will stop contacting you demanding payment.
        • After your case is resolved you can start rebuilding your credit. You can sometimes qualify for a mortgage two or three years after filing for bankruptcy.

        Read Also: Can You File Bankruptcy On A Judgement Against You

        What If I Cant Qualify For Debt Consolidation Loans

        If you’re unable to qualify for a debt consolidation loan, you may be able to pursue a or debt settlement instead. A debt management plan allows you to combine your debt payments into one each month while potentially reducing interest rates and eliminating fees. This option might be right for you if you need debt relief and you can commit to an organized plan for paying back what you owe.

        allows you to pay back less than what you borrowed from your creditors. You can try to negotiate settlements with your creditors yourself or work with a debt relief company that will negotiate on your behalf. Debt settlement is usually geared toward people who have fallen behind on debt repayment and want to avoid bankruptcy. Talking over the options with a debt relief company can help you decide whether debt management or debt settlement makes sense for you.

        Can You Afford To Make The Consolidation Loan Payments

        Consolidating your debts won’t eliminate any of the amounts you owe. Even if the consolidation loan reduces what you pay monthly, you still have to pay off the total amount of the debt. So, if you don’t have a steady income or can’t afford the new monthly payment on a consolidation loan, consolidating your debts probably won’t help you get back on track.

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        Should You Choose Credit Counseling Or Debt Settlement

        So, which one should you choose? Only you can answer this question.

        Debt relief is not a one-size-fits-all situation, and the options can be overwhelming. Before making a decision, we recommend speaking to a professional debt consultant. They will listen to your needs and help determine the best solution for your situation.

        Debt Relief In The Form Of Debt Settlement

        Credit Card Refinancing vs. Debt Consolidation: What are the Differences?

        Another option that a debt relief company can offer is Debt Negotiation Services also referred to as Debt Settlement or Debt Resolution programs. The goal of this service is to reduce the amount of debt that is owed by negotiating a payoff settlement for less than the balance that is owed. Some lenders may settle, or forgive, a substantial portion of your debt even up to 50 percent of the total amount owed. While it is rare that a lender would forgive your debt in full, any portion of the debt that you can release will help you take positive strides toward financial freedom.

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        How Credit Counseling Affects Your Credit Score

        Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

        If youre struggling with debt or a blemished credit history, it might be helpful to schedule a visit with a credit counselor who can provide you with specific steps to get out from under your debt load and improve your credit score.

        The good news is that meeting up with a credit counselor wont negatively impact your credit score, but some remedial steps offered by the credit counselor may temporarily cause a dip, but your score should improve over time as you take control of your financial situation.

        What Is Debt Counseling

        Debt counseling has two variations credit counseling and debt settlement. These two may be approached in the same package if you work with some companies, other times they are offered as separate services.

        Understanding Credit Counseling

        If your finances are a mess of paperwork, a credit counselor can help you sort through the bills, make a plan for repayment, and will generally be your ally as you regain control of your bills. There is no money involved and no new loans. It is support and information only.

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        What To Look For

        The precarious financial position of people in debt often means theyre also in a precarious emotional position.

        That makes it easy for less than legitimate companies to scam people with fake debt settlement programs.

        Watch out for companies that advertise government programs to bail out people in debt. These companies might also offer guarantees to erase your debts, or charge fees up front.

        These are signs that the company is a scam.

        When looking for credit counseling services, look for non-profits that dont charge any fees for their services. With so many out there, why pay when you can find a free credit counseling service?

        Do I Have To Enroll All My Credit Cards In A Debt Management Plan

        Debt Consolidation vs Debt Settlement: Which Is Better? | Freedom Debt Relief

        No, not every card must be enrolled, although if you are enrolling one card from a specific creditor, then you must enroll every card you have from that creditor. Also, it is a standard recommendation from credit counseling firms that you close all but one account that you can keep for emergency purposes or for renting a car, booking a flight, or renting a car. The goal of the Debt Management Plan is to get you out of debt. The credit counseling program does not want to see you incurring other debt while in the Debt Management Plan, as it will impede your goal of getting out of debt.

        Company Pages

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        You Can Diy Debt Settlement To Avoid Fees

        One thing to consider is that you dont have to contract a debt settlement company to settle your debts.

        It might feel strange to try, but dont be afraid to reach out to your creditors and ask to settle your debt.

        Explain your financial position and that youll have trouble paying your debts in full.

        You might be able to convince your creditors to settle the debt without paying the fees charged by debt settlement companies.

        What Is Credit Counselling

        Instead of consolidating your debts into a new loan, credit counselling serves to consolidate your debts into a settlement program and a credit counsellor facilitates a repayment plan for you to pay-off your debts in full, though there may be a break on the interest charged from banks that fund the credit counsellor.

          All credit counsellors charge fees for their services, even if their organization is non-profit.

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          What Is Credit Counseling

          , sometimes called debt counseling, is the process of working with a certified credit counselor to help you overcome financial challenges, such as those related to overwhelming debt or budgeting. Your counselor may be able to advise or educate you about your money, credit and debt set up a budget for you enroll you in a debt management plan or help you explore bankruptcy.

          Credit counseling may be best known for their debt management plans. You can enroll unsecured debts, such as credit cards, to consolidate monthly bills and get help with paying off your debt within three to five years. Your counselor can also speak on your behalf to potentially lower interest rates, monthly payments and reduce fees, as well as help stop debt collection calls.

          If youre behind on your bills, overwhelmed by debt or contemplating bankruptcy, working with a reputable counselor may be worthwhile.

          What Is Credit Repair

          Credit Card Refinancing vs Debt Consolidation

          Credit repair companies promise to improve your credit score by removing false information from your credit report.

          Heres the thing about credit repair companies: They do nothing that you cant do yourself.

          There is no magic eraser that will lift the stains off your credit report. Credit repair companies simply look for errors and write letters to the credit bureaus requesting that they correct these errors.

          They cant erase negative information just because its negative. Bankruptcies, foreclosures and overdue payments all blemish your credit report, thus weighing down your credit score for a time. No amount of credit repair can change that.

          These things take time to get better. However, the more time that has passed since a negative mark like a bankruptcy or repossession, the less damage it reflects on your score.

          A fresh bankruptcy scares off lenders a lot quicker than a bankruptcy suffered three or four years ago.

          What credit repair companies can do, however, is get the credit bureaus to remove information on your credit report that shouldnt be there.

          A chapter 7 bankruptcy can tarnish your credit report for 10 years, chapter 13 stays on the report for seven.

          However, mistakes are bound to happen. According to a study done by the Federal Trade Commission, one in five people have an error on their credit report.

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