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Credit Counseling vs. Debt Consolidation – Which is right for me?

Debt consolidation and credit counseling are similar services that assist individuals in getting out of debt.

Debt consolidation agencies help to minimize interest rates and therefore the monthly payments. The replacement of several monthly loans by a single loan at a lower interest rate and sometimes with an extended repayment period can be of significant assistance to a person in debt. A single secure loan can lead to the interest rates dropping by as much as half. The debt consolidation company interacts with the collection agencies and credit card companies on behalf of their client and along with a reduced rate, they can also negotiate for elimination of late fees and a reduced balance. Debt consolidation is not applicable to secure loans such as mortgage loans and car loans but is very useful for unsecured credit card loans.

Debt consolidation is received well by the creditors who prefer it over bankruptcy. Debtors can get out of debt by using debt consolidation and maintain a good credit record, something which would not be possible if they filed for bankruptcy. Debt consolidators may charge a fee upfront or charge service fees; given that most debt consolidation companies are non-profit, these fees are usually quite affordable. Debt consolidation is ideal forsome people who wish to get out of a debt as quickly as possible without juggling their finances in a major way.

Credit counseling organizations also assist consumers in clearing their debts. Credit counseling organizations were first started by the credit card industry that was looking for a way to ensure that their debtors not file for bankruptcy. Consumers who participate in a credit counseling program normally have a certain amount of debt with reference to the monthly income. One may not qualify for a credit counseling program if in the creditor’s opinion the debtor has the income to make the payments.

Credit counselors interact with the creditors on behalf of their clients to secure a revised monthly repayment schedule, a reduction in the interest rate, or a waiver of the interest charges, if possible. Credit counseling services assist with unsecured debit like credit cards, auto loans, medical bills, attorney bills, etc. Well-established credit counseling companies can even negotiate with creditors on behalf of those who have defaulted on secured debt repayment and help them to pay the arrears as per an agreeable plan, thereby avoiding foreclosure and repossession. Credit counseling is recommended for those who wish for a complete alteration in their finance management and require assistance from a third party to assess their financial options. It is not uncommon for creditors to pay the credit counseling fees on behalf of the debtors in order to encourage them to repay the debts. Unlike debt consolidation services, credit counselors provide useful advice for not only getting out of debt but also staying out of it