Popular Debt Relief Strategies - Debt Settlement Vs Credit Counseling
There is a harp line of difference between the two debt relief strategies namely debt settlement and credit counseling
. While settlement attempts to eliminate debt that you have by a huge percentage of 50% and above, the method of credit counseling aims at reduction of the interest rate. Counseling requires repayment of the debt in full to all your creditors with reduction in interest rate and a remodeled repayment scheme.
Credit counseling:
In credit counseling you need to first hire an agency offering consumer credit counseling services. You need to be careful while selecting a legitimate one. Some counseling agencies have a nasty habit of showcasing themselves as non-profit. Actually they make enormous profits and at times they force you to pay voluntary fees which is way beyond your reach. If an agency claims to be non-profit ask it to prove the same. If the agency shows the Internal Revenue Code 501 (c)(3), which is issued by the IRS, you will know that the agency is non-profit and you can trust the same.
The agency will then check out all your financial credentials and will send representatives to the different creditors you have. These representatives will negotiate with the creditors to reduce the interest rate and re-schedule payments for you. The creditors will generally agree and re-amortize the payment. You will then have to issue one single payment which is lower that what you used to pay and the agency will pay out the creditors with that money. The interest reduction may not be significant but however, it is a reduction. You will actually be paying all the money that you owe and there will be literally no savings. The process will take some 5 years or more to eliminate debt completely.
Debt settlement:
In debt settlement, you will have to hire a settlement firm which will advise you to go delinquent and save the money instead of spending it. The negotiator from the company will contact the creditor and negotiate on your behalf and eliminate the debt that you have by at least 50% and up to 70%. This can take as long as 1-3 years. Once the settlement deal is signed, you need to make lump sum payment to the creditor and get rid of the debt or you can actually get an installment scheme ranging from 2-6 months. The money that you save by going delinquent will now be used for repayment. There will be a significant amount of saving, a certain percentage of which you will need to pay as a fee to the settlement company!
Debt settlement is the best alternative to filing bankruptcy and the new regulations have made the process a much better deal for consumers.
Popular Debt Relief Strategies - Debt Settlement Vs Credit Counseling