Two Options You Can Exercise To Get Out Of Debt

A common debate these days is whether debt settlement is better or whether credit counseling is better when it comes to getting yourself out of debt. It would not be right to simply pick one on the basis of a couple of reasons. This is because they are both beneficial in their own way depending on what your needs are. The aim of this article is to familiarize you with the positives and negatives of both so that you can make an educated and well thought out choice regarding how you want to go about repaying your debt.

Credit counseling explained

The biggest advantage of credit counseling is that your counselor can actually get your interest rate reduced. This is not a guarantee but it does happen depending on whom you owe money to. Another advantage is that instead of paying all your several creditors separately every month, all you have to do is to pay the collective amount to your credit counseling service and they in turn pay repay your creditors. You’d definitely be able to repay your debt much faster when availing of the services of a credit counselor because of the steady rate you’re required to pay.

There are certain misconceptions about credit counseling programs that you should be aware of. Although they claim to get your rates reduced for you by talking to your creditors, in reality it works out just a little less compared to your previous minimums because of the fee you’d be paying for credit counseling. Another point of worry is that the success rate of people in credit counseling is only 25%. This is because your credit card company has the right to pull you out of the program if you miss even one payment.

Debt Settlement explained

What happens in debt settlement is that you strike a deal with your creditor and agree upon a lowered balance. It must be noted though, that your interest rate doesn’t reduce. For the possibility of this happening though, your account needs to have gone into default. The obvious advantage of debt settlement is that your repayment balance gets reduced and so you get out of debt much quicker than initially anticipated. It usually takes no more than two years to repay your debt after striking a debt settlement deal.

There is a downside to debt settlement though. Your credit score suffers a setback because of the negative remarks made by your creditors. This damage is not permanent though, as your credit score can be rectified in due course of time. You should bear in mind that you could also get sued. But it is not a great cause for worry since it has been seen that very few people get sued.

Looking at both options

Bear in mind that in the case of credit counseling, you end up paying around 120% of your current balance since you yet have to pay interest, albeit at a reduced rate. In the case of debt settlement, you can end up saving around 40% - 60% of what you owe. One great advantage that debt settlement has over credit counseling is that you pay off your debt in a maximum of three years, whereas it would take around five years if you were signed up in a credit counseling program. Regarding your credit status, with credit counseling, you are still reported as ‘current’, whereas in the case of debt settlement, you must already have gone into default.

Choosing between the two

In the end, you have to choose between the two depending on your particular financial situation. Debt settlement would be right for you if your debt were a sizable one of over $10,000. Debt settlement would also be the answer if you were having trouble staying on track with your monthly payments. On the other hand, if you’re not in dire straits, and are able to make your monthly payments on time, and you also have a steady source of income, then credit counseling would be right for you.

It is important that you don’t neglect your debt and you start with either of the above-explained options that are available to you. Which particular method you eventually adopt is entirely dependent on your individual situation, but you must at least take the matter into your own hands by going in for one of the options.

Related posts:

1. Manage Your Debt With A Credit Counseling Service
2. Debt Consolidation. Another opinion.
3. Get Rid of Your Debts with Clear Debt Solution
4. Credit Counseling Services Are Here To Stay

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