Debt Negotiation vs. Credit Counseling

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The desire to have one monthly payment often leads consumers to compare debt negotiation vs. credit counseling services. Both of these debt management plans often rely on the promise of "one monthly payment" to attract members. In addition, both types of services normally offer to cut your monthly bills in half. It is important to understand how each plan works in order to choose correctly.

Debt Negotiation

  • You normally pay an up-front fee.
  • You typically turn your account information to the agency. Your debt-negotiation agent will instruct your creditors to direct all correspondence to the agency.
  • Your debt negotiator will set up a monthly payment plan for you and will place your payments in an account. Your creditors will not receive a monthly payment. Once you fall several months behind and the creditor is willing to negotiate, providing that you have sufficient funds in your account, the debt negotiation company will make an offer.
  • Note that creditors do not negotiate if you are current on your payments.
  • Not all creditors are willing to settle.
  • Creditors can file a lawsuit against you while you're on the debt negotiation plan.
  • If you did not have bad credit when you joined the program, you will by the time you finish the plan.
  • Debt negotiation only handles unsecured debt.
  • Creditors are not obligated to work with debt negotiation services. It's important to understand that your creditors can file legal proceedings against you, even while you follow your debt negotiator's payment plan. 

Credit Counseling

  • Unless you choose a non-profit organization, you may need to pay a monthly fee.
  • Credit counseling companies normally offer debt management advice on how to create a budget and how to live within your means.
  • The agency might contact your creditors to reduce interest rates and eliminate late fees.
  • The counseling service might set you up with a debt management plan to help you pay off your debt. If this is the case, you will make monthly payments to the credit counseling agency, and the agency will make monthly payments to your creditors.
  • Depending on the company, the agency may receive a refund from each of your creditors.
  • Credit counseling agencies often have a network of credit companies, primarily credit card companies. Reaching a settlement is generally a matter of picking up the phone.
  • Not all creditors are willing to join a credit counseling program.
  • Credit counseling can only help you with unsecured debt.
  • Creditors can still sue you while you go through the program.

There you have it - the difference between two popular debt management plans. While some credit counseling services offer beneficial tips for making a budget and how to live within your means, debt negotiation companies charge a hefty fee for something that you can do yourself - withhold monthly payments from creditors. Therefore, consider your options and choose wisely.

Copyright © 2011 Ana Jackson. All Rights Reserved. Reproduction in whole or in part constitutes plagiarism, is illegal and strictly prohibited.


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