For consumers whose debt is somewhat manageable and don’t need to seek drastic measures to resolve it, there may be a benefit in seeking the assistance of debt counseling, also known as credit counseling.
With debt counseling, consumers learn how to properly handle their finances, so that they can recognize what led to their debt problems, and learn to practice financial strategies to prevent it from happening in the future.
In addition, debt counseling can help them understand how best to approach repaying their current outstanding debts in a way that makes financial sense for them and their families. Consumers who enroll in a debt counseling service can establish a plan to allocate more of their paychecks to paying their bills each month in order to quickly reduce their balances.
Unfortunately, using a debt counseling service may not be helpful to consumers with more substantial debts because it will not eliminate or reduce outstanding balances. However, it will help consumers create a monthly budget for paying off their balances responsibly. Debt counseling may be more beneficial to consumers whose debt load isn’t totally unmanageable because, unlike some other forms of debt elimination, it will have no bearing whatsoever on their credit score. However, participation in a debt counseling program will show up on a consumer’s credit report, which can still affect his or her chances of getting a loan with a fair interest rate.
For example, lenders may view consumers who apply for an auto loan or mortgage, and have used a debt counseling service, as a risky investment because of their history of mismanaging money. Thus, lenders may increase the amount of interest a consumer may have to pay on a loan if they qualify. The debt counseling may also make it difficult to qualify for a credit card or other type of unsecured debt for a certain period of time.
If consumers are burdened by a much heaver and insurmountable debt load, a reasonable alternative to debt counseling is debt settlement. Contacting a debt settlement company is one of the most common debt solution options available to consumers. These organizations have trained negotiators, who speak directly to a lender on a client’s behalf to reduce the total amount owed. Often, these debts can be reduced by roughly 50 cents on the dollar, and settlement programs can enable consumers to become debt-free from enrolled accounts in as little as 24 – 48 months. Generally, creditors will demand a lump-sum payment when a settlement is negotiated, although many creditors are also willing to structure settlements over time.
Whether consumers chose debt settlement or opt to enroll in a debt counseling program, they should thoroughly examine whether either method is right for them. Consumers should also research debt counseling and debt settlement firms to determine the best provider in the market.