debt counseling - unsecured debt management and settlement.

Credit Counseling versus Debt Settlement

Both programs offer consumers a way to repay their unsecured debt. To decide which program is best for you, apply for both and review each one's plan specifically designed for your unique circumstances. Read below to review the differences between debt settlement and credit counseling:

Debt settlement may impact your credit; however, if your credit is already bad and if you don't think you'll be able to endure the longer debt repayment plan of credit counseling, then debt settlement may be best for you.

With credit counseling, you have the opportunity to improve credit if you can stick with the program. Debt counseling typically takes longer to repay debt or has a much higher monthly repayment plan.

Get your finances under control without credit counseling:
Look through your checkbook, statements, and receipts. Start gathering information on where, and how much money you spend in various categories on a weekly or monthly basis.
Just knowing where your money goes is a terrific education in and of itself. You will be amazed, and learn things about yourself you didn't realize. And right away, you'll get some great ideas on how to curb spending. This is the first step towards do-it-yourself credit counseling.


What is Credit Counseling: (also called debt counseling or debt management): Your debt is combined into one lower monthly payment to make it easier for you to meet your financial obligations.
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.

You may have heard that debt counseling will trash your credit report or that it's worse than bankruptcy; however, this is not true. 

Debt counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.

Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won't do business with you for the 10 years the bankruptcy remains on your file.

What happens to your credit during debt counseling largely depends on how your lenders report your account to the credit bureaus.

Being reported as late or delinquent will certainly hurt your credit score. A simple notation that you are in debt counseling probably won't. The credit score formula used by most lenders, known as FICO, now ignores any reference to debt counseling that may be in your file, according to a spokesman for FICO creator Fair Isaac & Co.

Even some lenders that were traditionally suspicious of debt counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans.

Some lenders say they even view debt counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company's eyes by enrolling in -- and sticking with -- a debt repayment plan.

However, there are still some lenders who refuse to deal with anyone who has enrolled in debt counseling. And if you fell behind on your payments before you entered debt counseling, you'll find those late payments will still affect your credit score even after you've paid off your debts.

What is 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.
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.


As you can see, there are no easy answers for people who get in trouble with credit. It comes down to a personal decision; how badly do you need help, how badly has your credit already been affected, and how much worse would your credit rating become if you did not enroll in debt counseling.