Credit counselling and debt settlement are not the same. So it is important to understand the critical differences between the two. Before deciding which option is best for your debt situation.
In today’s economy, being in debt (and being aware of it!) are not uncommon. People find themselves seeking the help of different companies. Offering services such as credit counselling, debt settlement, and elimination.
In fact, choosing the wrong debt management solution could actually land you in even worse financial circumstances.
Read More: 4 Ways to Get Out of Debt Fast
Debt management services have become big business. All around you see advertisements, commercials, banners, and email bombardments offering “solutions” to your financial problems.
But how do you know which service to reduce or manage debt will work for you? To make an informed decision, it is important to understand the difference between credit counseling and debt settlement.
A credit counseling company will assist you in managing your debt. By helping you to figure out how much you can afford in monthly installments. A credit counselor may also be able to help you get your interest rate reduced. To a rate lower than the amount you were paying previously.
A credit counselor will look at your debts as a whole. And come up with the best way to pay each one off month by month. According to you income and expenses.
When the credit counselor has calculated a monthly sum, you will need to pay this amount to the company. They will disperse it among your creditors accordingly.
Rather than just making the minimum payment on each debt owed, the credit counselor will try to find a way to find a realistic fixed payment. That will help you get out of debt much quicker.
If you commit to a fixed payment, this may also be a factor that causes your creditor to reduce the interest rate on the debt you owe. As they know that they will be getting a certain amount from you each month.
These benefits of hiring a credit counseling company sound promising. But remember to stay savvy when it comes to debt repayment.
Beware of some Credit Counselling Services
Some companies say that they will be able to cut your payments down. But when you add on the fees for the credit counseling service you are actually paying close to the same amount as you were before the interest rate was reduced.
If you decide to enroll in a credit counseling service you need to remain vigilant. As these kinds of programs have a failure rate of about 75%.
The reason this figure is so high is because you can be ejected from the program if you fail to meet one monthly payment.
Companies that offer debt settlement solutions claim to negotiate with the person/ institution you owe money to. Asking them the lower the total amount of debt owed if you are able to pay and upfront settlement fee.
Before signing up for debt settlement services, it is important to ensure that you are dealing with a reliable company.
Dishonest debt negotiation companies could just take your money without doing any negotiations with the lender. Because you have put your trust in the debt settlement company, you may lose some contact with your lender (thinking the company is doing the talking for you!). You can actually find yourself even deeper in the red.
With this warning in mind, it is important to seek external references for the company. Source some success stories before sinking even more money into your debt consolidation.
Also, be sure to maintain contact with lenders. If possible, try work out a debt settlement plan with the lender directly before seeking external help.
Debt Settlement Conclusions
Remember that, like anything, if it sounds too good to be true – it is too good to be true!
Reducing debt is never easy, even if some services make it seem that way.
If a debt settlement company has told you that your debt will simply vanish when you use their services… Be wary of the services they provide. Be sure to do some kind of background check online or through a trusted source.
If you are already in debt, the last thing you need is to fall deeper into the red. So always be aware and so your research before signing up for any debt management program.