Credit counseling or debt settlement - which option is best for you?

What is Credit Counseling
A process where a third party negotiates with creditors and establishes a payment plan on behalf of the debtor. The fact that a person is in credit counseling may be reported to the credit bureaus and listed on the credit report. Credit Counseling; however, is more preferred by creditors than debt settlement, and it can help improve or lessen the damage to your credit score.

What is debt settlement
Debt Settlement, or debt negotiation, is the act of contacting your creditors and negotiating a reduced payoff of your debt. It is not uncommon to pay 50% or less of the principal on your debt as settlement in full. This will save you more money in interest and principal payments than any debt relief program outside of bankruptcy. You should keep in mind, however, that some creditors will likely report your settlement to the major credit bureaus. However, when trying to get out of debt and to protect your credit as much as possible, debt settlement can be the most economical option for you.

 

Credit counseling and debt settlement Consumer credit counseling (also called debt management): Your debt is combined into one lower monthly payment to make it easier for you to meet your financial obligations. Debt Settlement (also called debt negotiation): The principal balance of your debt is negotiated to reduce the balance owed and get you out of debt faster.

 
Get a non-profit credit counseling or a free debt settlement quote online. Even non-home owners can enjoy unsecured debt consolidation and debt negotiation.

Learn who qualifies for a debt consolidation loan and review options to get out of debt.

Don't know which debt program is best for you? Compare credit counseling vs debt settlement to help you decide which one offers the best benefits for your situation.

Whether you choose a credit counseling agency or a debt settlement company, either program can only help you with unsecured debt. Find out what types of unsecured debt qualify.

There is no such thing as a non home owner debt consolidation loan. You may; however, use other alternatives to reduce payments or to get a loan to pay off debt.

Settlement Chargeoff

There are times when a settlement might be what is needed if the person has money to attempt to settle a debt and negotiate for a lower payoff. If debts are more than five or more months past due, if the debt settlement will be less than what you owe, and if bad credit may not be factor you are worried about, it may be an option to get out of debt quickly. A debt settlement could be negotiated for as low as 50% of what you actually owe. When in thousands of dollars of debt, this may be the quickest way to get debt relief. 

To try to negotiate a debt settlement yourself, let creditors know that you could be facing bankruptcy and don't make any agreements that are oral. Make sure to get the agreement and terms in writing and mailed to you. Get the creditors to agree to report the account to the credit bureau as “satisfied in full” when you make a payment and use a money order sent by certified mail. If you can't get a good debt settlement by negotiating yourself, consider getting a debt settlement professional.

Credit Counseling Tips

Credit counseling professionals can help you manage debts and teach you how to use credit wisely. A counselor will ask you questions about your income and expenses and then they will give you options or recommendations for your financial problems. They will help you create a budget, manage your money, and work out a payment plan with your creditors. When you have not been able to fix your debt problems yourself, a professional can be very valuable.

Choosing a credit counseling or debt agency is very important. The best way is to choose an agency that has a good reputation and some happy clients. They should be able to offer you personalized services for your financial needs. Review several agencies and ask friends if they know of any they would recommend. Look online and in the phone book for agencies. You can contact the National Foundation for Credit Counseling (http://www.nfcc.org) or the Association of Independent Consumer Credit Counseling Agencies (http://www.aiccca.org) for a list of members.

Check to see if the agency is licensed and accredited. Many states require credit counseling organizations to register or get a license before offering credit counseling or debt management plans. If an agency has not followed the requirements for your state, don't use them. Check to see if the agency belongs to the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies as they must adhere to strict standards and use certified credit counselors. Be sure to ask if counselors are certified and by whom.

Services should be personalized to fit your personal financial needs and you should not get a debt plan that all clients use. A plan should be created to fit your circumstances along with how you can avoid future financial problems. Your privacy and security is important and you will need assurance your information will be kept confidential. Review their privacy policy and how they protect your information. Make sure you know exactly what services they offer.

Contact your Better Business Bureau, check for complaint records, and the local consumer protection agency to find out information about the agency. Complaints can be a sign of problems. Get everything in writing with a formal written agreement or contract. Read the terms of the agreement or contract. It should describe the services, the payment terms, the total cost, the length of time involved for the services, and the counselor's name, business name, address and contact information.

Make sure you understand the fees you will be charged. Check to see if there are set-up fees, monthly fees, or any other fees. Monthly fees should be added to your debt information and the fees should not hinder your effort to pay off your debts. If fees are too high, consider other agencies or ask for a reduction in fees. Find out if your creditors are paid 100% of the money you pay through the credit counseling agency. When debts are out of control and getting out of debt has not been possible, professional services can help.

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