Differences Between Debt Settlement and Credit Counseling?

Differences Between Debt Settlement and Credit Counseling?

Two of today’s common types of debt relief are credit counseling and debt settlement. While many people have heard of both of these methods, most do not know the differences between them.

Many who are in debt and not able to pay their bills, turn to debt settlement. Your debt is negotiated and lowered by 40-60% of the total. The remainder of the debt is forgiven to help you to become debt free faster. Medical bills, credit cards, gas cards and personal loans can all be part of a settlement program.

There are 5 major benefits to debt settlement:

1. Avoiding bankruptcy. You are lowering your debt and paying off bills at the same time. You negotiate your debts for as much as you think you can afford, not needing to file bankruptcy.

2. Having one payment. Instead of paying several bills every month, you make just one payment each month to the settlement company. These payments are then sent to your creditors. You will be able to avoid having several different rates and working with several creditors.

3. Avoiding collection practices that are unfair. You can avoid collections and harassment by collectors.

4. Eliminating extra charges. You will be able to negotiate late fees, over-the-limit fees and any other fees accumulated.

5. Avoiding legal actions. You will be able to avoid actions like judgments or garnishments.

Many people will turn for help from credit counseling before their debt gets to be too much. Others will look into this program to get away from creditors. Those who will get the most benefit from credit counseling are those who are unable to make minimum payments and not able to pay off bills. Many have already started getting collection letters.

The typical credit counseling program focuses on assessing your situation and negotiating to get you better interest rates.

A budget and payment plan will then be put into place. Credit counseling will assist with unsecured debts, including personal loans, medical bills and credit cards. They typically do not help with secured loans like a mortgage, auto loan, utility services or insurance bills.

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