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