Ways Out of Credit Card Debt - Credit Counseling Vs Debt Settlement
Ways Out of Credit Card Debt - Credit Counseling Vs Debt Settlement
When consumers start looking for ways to get out of debt, they come across a number of debt relief options. Credit counselling and debt negotiation are two most sort after debt relief methods. These methods have different ways of giving relief to their customers. Understanding the basic working principles of both these methods helps in choosing the correct option.
Credit Counselling:
This service helps the debtor in creating a payment plan to suit his financial conditions. The counsellors educate their clients about how credit card debts get accrued and shares tips on how to avoid them. This is generally the step towards enrolling in for the debt management plan. The credit counselling itself does not negatively impact the credit report but when the debt management plan starts it has some negative points on the credit report.
The credit counsellors charge their customers monthly fees. They help the customer to open up a new account in which they make them save a certain amount every month which is then used to pay off the debts.
Debt settlement:
This is a debt relief method which helps the debtor to reduce the total amount of debt. The creditor and the debtor agree on a reduced amount to be paid as a full payment. This is done in exchange of a down payment of certain amount of money. A debtor can expect his total balance to be reduced by at least 40% to 60%.
The procedure involved is simple hence a debtor can negotiate a debt settlement himself. Hence he does not have to incur the cost of hiring professionals. This process of debt relief shows up negatively on the credit report. However it is possible to negotiate with the creditors to remove the note from the debtors account about account being settled.
Debt settlement is a legitimate alternative to filing bankruptcy. If consumers are experiencing a financial hardship and have at least $10k in unsecured debt then debt settlement can be a legitimate way to eliminate up to 70% of that balance.