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Debt Consolidation Versus Debt Settlement

Credit Counseling

Debt Settlement Versus Consumer Credit Counseling

You have a debt problem. Otherwise, you wouldn't be reading this article. So, what are your options? Bankruptcy has gotten too expensive and too complicated. Plus, it stays on your credit report for 10 years and generates a public record about you. The other two options you have are debt consolidation and debt settlement. But which is better? The following will provide some guidelines on what each is and what the pros and cons for each are.

Consumer Credit Counseling

Consumer Credit Counseling (CCC) Service, also known as debt counseling, is typically a nonprofit organization that is funded in full or in part by contributions by creditors. You make one monthly payment to the consumer credit counseling agency. Then, they disburse your funds and pay each of your creditors for you.

A consumer credit counseling agency will usually be able to get your interest rate lowered, have the creditor remove late charges and over limit fees and stop the harassing collection calls. But, you will still be paying the full balance owed on your unsecured revolving credit card and personal loan accounts. You typically need about $7,500 of unsecured debt to qualify for consumer credit counseling. Unsecured debt includes credit cards, department store cards, medical bills and personal signature loans--any loan that doesn't hold collateral.

Did your credit counselor disclose that likelihood of your credit scores being adversely affected?

That's right. Consumer credit counseling does adversely affect your credit just as much as debt settlement does. Plus, credit counseling can prolong low credit scores because it takes much longer to pay off your debt. The final and worst downside of CCC: there is about a 75% failure rate of people enrolled in these programs. The reason for this is because the credit card companies have the right to kick you out of the program if you miss just one payment.