Debt Consolidation Services Versus Credit Counseling |
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If you are considering using a debt consolidation services, credit counseling or a debt negotiation company to help you get out of debt faster and 'cheaper', then you should try and
understand as much as you can about these companies before you sign up. Many people just like you, feel preyed on by the myriad debt help companies out there proclaiming to help you with your debt situation. The question is, Can these debt consolidation services, credit counseling and/or debt negotiation companies really help you, or are they just out to take advantage of your delicate situation? A good starting place is to take a closer look at exactly how these debt elimination services really work, learn the differences between the services and decipher all the promises that they make. Is debt consolidation services and credit counseling the same? Let's take a look at each. Debt Consolidation Services There is a common misconception that debt consolidation services programs involve the consolidating of your debts, which is just not true. Your payments are consolidated, allowing you to make just one payment each month to the debt consolidation services firm handling your account. This company would then turn around and pay each of your creditors on your behalf. What exactly do debt consolidation services companies do for you? When you sign up for a debt consolidation services program, you are assigned a debt counselor that works closely with you and creditors. One of the first things is that your creditors will be contacted and made aware that you are working with debt consolidation services or credit counseling company. Your creditors will be advised that all future contact regarding your accounts is to be directed to your debt counselor, not you. This alone should take a huge amount of stress off of you. No more dealing with angry creditors and wincing when the phone rings wondering if it is someone calling to collect a debt. The next thing is that the debt consolidation services or credit counseling company begins negotiating with your creditors to lower your interest rates, remove late fees from your accounts and arrive at a monthly payment that will fit your budget. Debt consolidators can often get your creditors to reduce interest rates by 50%, and sometimes by 100%. In other words you would not be paying any interest, and all your payments go directly toward paying down your debt. Most major credit card companies have set interest rates that they offer to customers working with debt consolidation services, credit counseling and debt management companies. For example, Bank of America eliminates all interest charges for consumers who are working with debt consolidators. Yes, a 100% reduction. On the flip side there are creditors that will not reduce interest rates at all. Bottom line? It varies from creditor to creditor. But overall, a good debt consolidation services or credit counseling firm can dramatically reduce the amount of interest you are paying every month. 2. Credit Counseling An important part of any debt help program should be to ensure that you receive the proper education and information to help you avoid the same debt problems that you are facing now, in the future. This is where the credit counseling part of a debt consolidation services or credit counseling program comes in. You probably noticed that in the explanation of debt consolidators in the above section, the term credit counseling was also used. Most debt consolidation services offer credit counseling as part of their debt management program, which is why "debt consolidation services" and "credit counseling" often describe the same program. However, unlike the debt consolidation services portion of the program, which deals mainly with your creditors, the credit counseling portion deals mainly with you. A credit counselor will work with you to help you manage your money, find solutions to your current financial problems and develop a personal plan for the future so that you can avoid similar debt problems in the future. |
