Debt Settlement and Consumer Credit Counseling

Debt Settlement and Consumer Credit Counseling – What’s the Difference?

Those buried under the heavy pile of debt often get confused choosing between debt settlement and consumer credit counseling. Some feel that choosing debt settlement is a great option as it can drastically reduce your debt amount. On the other hand, there are people who are of the opinion that credit counseling is a wise choice, as it gives you the opportunity to pay back your creditors at a reduced interest rate. The question, however, remains which is the ideal option? Well, as clichéd as it may sound, the medicine can be decided only after diagnosing the patient. Yes! It completely depends on your situation and goal…

People often jump to hasty conclusions due to the anxiety of mountainous outstanding debt. It is vital to know that both debt settlement and credit counseling have pros and cons. Let us look at each of them in detail:

What is debt settlement?

Debt settlement is a procedure where in you renegotiate your debt with the creditor and payback the new amount within two to three years. Though this may seem like a profitable choice, it is really not all that simple. Even though you may feel that debt settlement is your best bet, if your creditor believes that you are capable of repaying the original amount, by all means your application will be rejected.

Debt settlement, however, can be great choice for people who qualify for it. It can make you debt-free in maximum three years and help you save a large sum of money. If you choose an expert to negotiate with your creditors, you can actually reduce your debt amount by a whopping 50% - 60%! With this procedure you can actually come out of the never ending rigmarole of creditors harassing you with embarrassing calls time after time or collection agencies making your life hell!

A lot of people are worried about their FICO score being hampered because of debt settlement. Yes, it is true that initially with debt settlement your credit score might suffer a blow. But this is a temporary setback. And what’s the point of having a high-flying FICO score when your overall financial health in utter mess?

Individuals are also paranoid about getting sued by their creditors during the process of debt settlement. This is an extremely rare scenario. If you are regular with your monthly renegotiated payments then why worry? And a genuine debt settlement company will be in constant touch with your creditors, so the chances of them filing a law suit against you makes little sense, as they are only interested in getting their money back!

What is consumer credit counseling?

Having looked at debt settlement in detail, it is now time to review the other side of the coin. Unlike debt settlement, credit counseling does not aim at renegotiating the principal amount. With the help of credit counseling you can reduce the rate of interest and payback the debt at the reduced interest rate.

Remember though it may feel as you are paying less because of the reduced interest rate, you will still end up paying about 120% of the original outstanding dues. In debt settlement you have the option of accepting or rejecting the renegotiated amount from the creditor. On the other hand, in consumer credit counseling you have to abide by the strict rules laid out by the counseling agency and payback as per the norms outlined by it.

Credit counseling gives a “CC” remark on your credit report, which may at times work to your disadvantage in the long run. Though you may feel that your FICO score is unaffected with credit counseling, lenders may actually use the CC remark as a reason to decline your loan.

To sum it up, debt settlement is an option for those who are dedicated and willing to come out of debt as soon as possible. Credit counseling is for those who are interested in synchronizing all their debts and paying back at a reduced interest rate.

It is advisable to consult an expert before taking a call. Someone who has thorough knowledge and expertise in this area will be able to give you accurate guidance. As before taking any decision, it is extremely important to take into account your financial status, running income and priorities.

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