Debt Consolidation and Credit Counseling

December 23rd, 2009 | Posted in Debt Consolidation, Debt Relief

No matter what your occupation, your status in life, or what your belief system is – in our money-driven society almost all of us are familiar with debt. There are bills to be paid, groceries to be bought, taxes that go to the government, and a plethora of other obligations that must be met each month. It doesn’t matter what your walk in life is, debt is simply a reality in today’s world.  Where the problem comes is when that debt becomes too much.

For any one of us, a number of situations may make our debts become a problem. When that happens though, it’s important to know that you aren’t necessarily stuck. Bankruptcy isn’t the only option. Understanding that, knowing that you can turn to debt consolidation and credit counseling can relieve a large part of the burden when debt is a problem.

To take it further though, it’s important to understand the differences between debt consolidation and credit counseling, and to be able to choose the solution that’s right for you.

Debt Consolidation and Credit Counseling – What’s the Difference?

There are obvious differences between debt consolidation and credit counseling. Consolidation entails taking out a loan, while credit counseling involves working with a debt counselor to negotiate down the amount of money you owe. There are also less obvious, and often misunderstood, differences between the two.

1. Differences in length of time to complete – One of the biggest differences is the length of time to complete the program. A consolidation loan usually averages 5 – 8 years before it’s paid off. On the other hand credit counseling, often referred to as debt settlement, is usually completed in 2 – 3 years.
2. Differences in the way your credit is affected – One of the most misunderstood differences between debt consolidation and credit counseling is the way in which your credit rating is affected. People seem to think that because consolidation is a loan that it affects their credit in a positive way. This isn’t true at all.

A consolidation loan is a black mark on your credit rating. Most lenders look at your current credit, see that you overextended yourself, and will refuse to extend further credit. This black mark lasts for the length of time the consolidation loan is on your credit rating, and five years after. Since a debt consolidation program can last as long as 8 years, that’s 13 years that the loan may affect your ability to gain credit.

Since a debt settlement program is over faster, the negative effect to your credit rating doesn’t last as long. If you finish your debt settlement in 2 years, then at that point you can begin working to rebuild your credit and overcome any negative effects the counseling program may have had.

These differences are important to consider as you choose the debt relief program that is right for you.

Debt Consolidation and Credit Counseling – Which one’s Right for Me?

With a clear understanding of the differences between debt consolidation and credit counseling choosing a solution isn’t really that difficult. The only other thing you really need to consider is the amount of debt you have.

If your debts are still a manageable amount, and are under $10,000, then a consolidation loan may be the best solution. The important thing here is that you are able to pay the loan off in a 2 – 3 year period. This obviously becomes less likely as you begin dealing with larger amounts of debt (most of us couldn’t pay off a $100,000 loan in 3 years).

For those with a larger amount of debt, a credit counseling program is likely the best solution. By working with a counselor and having the balances of the debts themselves reduced – your debts become more manageable and you’ll be able to complete the program in a shorter amount of time.

If you’re currently suffering because of huge debts, you may want to check out our debt relief review page. We cover the top 3 debt relief companies in the US according to our research and consumer feedback.

Consumer Credit Counseling Programs

December 19th, 2009 | Posted in Bankruptcy, Debt Reduction, Debt Relief

One question that comes up often when talking about debt relief and debt settlement is consumer credit counseling programs. The idea of credit counseling is often misconstrued, misunderstood, and mistrusted for all of the wrong reasons. From that, we wanted to take some time to talk about credit counseling.

In this article we will cover what consumer credit counseling is, the various forms it may take, and we’ll help you to get rid of some misconceptions you may have had about credit counseling in general.

Consumer Credit Counseling – Definition and History

The first thing we need to cover is what consumer credit counseling is. In general it is a process offering education to consumers about how to avoid incurring debts that cannot be repaid.

The process itself actually entails more than educations, and usually credit counseling often involves negotiating with creditors to establish settlements on existing debts. The concept of credit counseling was established in the 1980’s as was proposed created as an alternative to bankruptcy for consumers who could not meet their monthly obligations.

In the early 1990’s credit counseling began to get a bad rap in the U.S. At the time credit counseling agencies were springing up all over the place, and some of them actually worked more for creditors rather than consumers.  This led to an antitrust lawsuit against the National Foundation for Credit Counseling, or NFCC, and the need for better legislation led to some of the associations that manage debt negotiations today. It also led the FTC (Federal Trade Commission) to file lawsuits against several credit counseling agencies.

This bad reputation is what makes some people cringe at the thought of credit counseling today. However the reputation is mostly undeserved. Â In the world of consumer credit counseling today, the various associations that regulate debt negotiations have led to better debt settlement agencies.

Consumer Credit Counseling Programs

Consumer credit counseling programs provide a viable, and better, alternative to bankruptcy. But, and yes there is a but, the FTC still recommends that you research the company who you use for credit counseling services.

This is actually one of the reasons why we started this site, and why we take the time to share information with you on debt relief. Our reviews of the top three debt relief companies, provide you with three companies that can help you choose the right consumer credit counseling program, and who will work for you to get the best results possible (and relieve your debts faster).