The Difference Between Debt Settlement and Credit Counselling

This recession has opened up the gates to allow in predators and sharks.  Too many consumers, straddled with debt are looking for help to get through the hard times and find a road to recovery for their personal finances.  Unfortunately, they might fall victim to those who would take their last dollar and leave them further in debt.

Debt settlement companies are supposed to help you wipe out your debts by offering a settlement to your creditors when you can't foot the whole bill.  Unfortunately, these companies charge big bucks upfront, and two out of three people are left in a worse situation than when the started.  The latest buzz on debt settlement companies is that many are sneaking out like a thief in the night to avoid consumer protection legislation.  To learn more about this, please see Debt Settlement Companies Preparing to Run.

Credit counselling, on the other hand, takes a different approach and is more successful.  Credit counselling works on a long term solution and develops a plan that will focus on both your income and your debt loads.  Credit counsellors have a much better track record for lifting consumers from the despair of bill collectors, and putting them on the track to financial stability.  To understand the details of what credit counselling is all about, please see What Do Credit Counsellors Do?

The main difference between debt settlers and credit counsellors, aside from success rates, is the strategy they invoke to aid the consumer.  Debt settlement companies, when they do their job, deal in the here and now.  They make an offer (on your behalf) to pay off a portion of the debt and the credit grantor writes off the rest.

Credit counsellors, on the other hand, whittle your debt down to what really matters: the principle.  In other words, the amount you actually borrowed from the creditor.  They work out a payment plan over a few years so that your creditors will get back the money they extended you.  It won't come free of interest, but it can usually be reduced to a manageable percentage.

Neither option is great for your credit rating, but lets face it, if you can't pay your bills or you've missed a payment, you certainly don't need more credit right away.  Rebuilding your credit is secondary to reducing your bills.  Living on your income, however modest, means learning how to brown bag your lunch and keeping a safe distance from the legendary "Joneses".   In the end, managing your debts, either with a debt settlement company or a credit company, can pave the road to future financial management for yourself and your family.