Credit Counseling and Debt Settlement: Know the Difference

Where can you get debt help? The answer can depend on how much credit card debt you have, and how many payments you've missed. Credit counseling typically helps clients with several thousand dollars of debt who cannot make minimum payments without shorting essential living expenses. Debt settlement is typically considered a last resort before filing bankruptcy.

Getting Debt Help: Credit Counseling Services

Credit counseling services work as intermediaries between credit card companies and consumers. It's important to choose a reputable credit counseling service as you remain legally responsible for making payments regardless of the terms of your credit counseling repayment plan. Contact NFCC, a professional advocacy group for credit counselors, to learn more about how to select a credit counseling service. Here's how credit counseling services can help:

• Budget Review: Your counselor will review your financial information and help in establishing an affordable monthly budget that includes a monthly amount for paying creditors.
• Cost: Credit counseling services may base their fee for services on your ability to pay. They may require payment up front, or accept monthly payments in addition to the monthly amount you agree to pay toward your debt. Make sure you get terms and conditions in writing, and read and understand them completely before signing a credit counseling agreement. It's worthwhile to shop and compare credit counseling services before making a final decision.
• Time: Depending on the amount of your debt and how much you can afford to pay each month, debt repayment may take up to five years.
• Communicating with Creditors: Once you've accepted a debt repayment plan, your credit counselor will deal with creditors on your behalf. This reduces, if not eliminates, collection calls and letters.
• Debt Consolidation/ Repayment Plan: Your creditors will be paid from the monthly amount you pay your credit counseling service. Your creditors are paid according to the terms of your repayment plan. Double check occasionally and make sure these payments are being made.
• Fee Waivers: Credit counseling services do not generally negotiate reduction of your credit card balances, but they can help eliminate credit card fees and lower interest rates. This is helpful for paying off debt faster, as your monthly payment will go directly toward your credit card debt instead of being absorbed by recurring late fees and over limit charges.

Debt that cannot be repaid within five years may not qualify for resolution through credit counseling.

Debt Settlement: Avoiding Bankruptcy

If your credit balances are so high that it seems bankruptcy is your only way out, debt settlement may help. A debt settlement company provides debt help by negotiating a reduced amount to settle your debts. If your creditors agree, you will pay them less than you owe to fully settle your debt. Never pay a debt settlement service in advance of receiving written documentation of services provided and an itemized statement of costs. Debt settlement services may counsel clients to stop paying creditors and save toward paying their settlement amount. This can further damage your credit, but if you've reached the point of filing bankruptcy, this may be of little concern.

Get Debt Help--But be Careful

While there are debt settlement companies that work by opening an account and having you deposit into it monthly, it's best to keep control over your money. You don't want to discover that all the money you put aside went to fund some disappearing dirt bag's overseas escape.

About the Author:
Karen Lawson started writing stories about birds and surfing at an early age. For more than ten years, she enjoyed a productive corporate career in mortgage banking before moving to Reno, Nevada in 1997. Karen earned BA and MA degrees in English (specializing in writing) at the University of Nevada. Significant areas of research and writing include truth and ethics in creative nonfiction, medical humanities, and the symbolism and lore of birds in American literature and culture. Karen has taught English at a community college, is writing a collection of poetry, and enjoys birdwatching and walking her basset hounds.