Credit Counseling vs Debt Settlement – What Debt Relief Option Is Best?

Credit Counseling vs Debt Settlement What Debt Relief Option Is Best

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Debt settlement means negotiating for debt or arbitration. It is an approach to reduce debt in which the debtor and creditor mutually agree on a reduced balance in order to reduce losses or total loss from bankruptcy thus benefitting both parties so that it will be regarded as payment in full. Creditors will not negotiate for a reduced balance until the consumers continue to make minimum monthly payments. Balances continue to grow because of late fees and ongoing interest when the payments stop.

Debt settlement is a faster way of getting rid of accumulated debt. It is viable to opt in for debt settlement for those consumers who are only able to make the minimum monthly payments or not able to pay the vast amount of unsecured debts. This leads to a negative effect on the credit score. Usually the creditors are not willing to bargain unless your payments are late or ceases which finally has a negative effect on your credit score. Once you repay all your credit card debts in a short period of time this limitation of low credit score can be overcome in the future.

Credit counseling (which is also known as Debt Counseling in UK) is a process where the consumers are educated how to avoid incurring debts that cannot be repaid by establishing an effective Budget or a Debt Management Plan. Credit Counseling confirms and establishes through a planned method of debt relief also known as Debt Management Plan. Credit counseling consists of bargaining with the creditors to draw or set up a debt management plan (DMP). A DMP might help the debtor to repay debt by offering a reduced payment, fees and interest to the client. Credit counseling is generally long term where all your unsecured loans are accumulated and consolidated into one which might turn up a higher monthly obligation since the principal is paid back in full and the credit score is not affected. Credit counseling is more like debt consolidation where the credit counselor divides your one monthly payment among all your creditors. Thus a credit counselor can get you a lower rate of interest along with a stop to harassment, threats and all unwanted calls for debt collection. A good credit counselor helps and provides the latest updates by mediating with the creditors which is important and required while taking decisions.

A debt settlement plan may be more suitable than enrolling for a debt management program. Here is a guideline to better negotiate with your debt. The main things to remember is to respect the warnings and do not ignore the alerts. Many fail to realize the warnings which may lead to a financial disaster. Hence do not be late and ask for help. It is always advised to create a good relationship with the creditors and inform them that you are unable to search a solution to repay your debts seriously without hindering the lives of your family. It is always advisable to do it on your own if it is possible. Many credit card companies are more willing to chalk out repayment plans directly with the borrowers. Hence consider all your options available.

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