In today’s bad economy situation, more and more consumers find themselves only able to afford the minimum payment of their credit cards, while others may not even earn enough to make payment for their credit card balances. Many of these desperate consumers tend to go for the worst option that involves a bankruptcy filing when their financial situation is getting worse and they find difficulties to make their debt payment.

However, most of these consumers who choose to go for bankruptcy filing may rescue themselves from debt without the need to go for this worst option. Unfortunately, they are making decision without knowing that there might be other better options which may save them from overwhelming debt problem without a bankruptcy.

Bankruptcy is not advisable to be the preferred solution if you have a better option. The consequences of this option does not stop once you complete the filing, instead, it will follow you for years. A bankruptcy status will stay on your credit report for a minimum of seven years. During this period, you may find it difficult or almost impossible to obtain credit. Therefore, it should always be your last option when you can’t find other alternative to get your out of debt.

Sometimes, you may feel you can't find a solution to your debt problem, but in actual fact, this may not be the case. Since, you are in a desperate condition, you may not have patient to fully explore the potential solutions for your debt problem. If you are at this situation, then getting helps from professional such as consumer credit counseling service is the approach you should go for. A counselor will be assigned to analyze your debt problem and get to understand the details of your financial situation before he proposes solutions that may resolve your debt issue.

Statistics found that most cases where consumers choose to file a bankruptcy as their debt relief option are actually have a better solution such as enrolling into a debt management program proposed by credit counseling service. Therefore, you should always explore the available options or at least consult a consumer credit counseling service before you make your decision to choose bankruptcy as the only option. The debt relief solution proposed by the credit counseling service normally will involve a debt management program where the counselor will work out with your creditors and come to an agreement to allow you to pay your debt according to the schedule stated in the debt management plan. It is your call to decide whether you want to enroll into the debt management program; however, it might be a better option to enroll into the plan compares to the option of filing a bankruptcy and get your debt pay off according to the schedule in the plan.

The bottom line is never go for a bankruptcy filing without analyzing for alternative options to relief you from debt problem. Try to approach for a consumer credit counseling to explore other potential options before bankruptcy becomes your ultimate solution for debt relief.

Both credit counseling and debt reduction are common solutions used by consumers for debt relief. But, people tend to get confuse between these two services and find difficulty to decide which option to select. While there are many similarity between these two types of debt relief programs, there are some key differences that you may want to take into consideration when deciding which option to go for. Let explore the major differences between debt reduction and credit counseling.

1. Credit Score

If you choose to enroll into a credit counseling program, your accounts will be re-aged to current status after you have made three payments. On the other hand, your credit score will suffer if you choose to follow a debt reduction program because your credit report will still stated as late payment while you are settling your debt. But, at the end of the program, the creditor will report that your account has been "settled in full" which is one of the agreements in a debt reduction contract.

2. Total Debt Payment

Normally, the credit counseling companies will help their customers to negotiate a lower interest rate, making them pay less in interest. However, the principle of debt is remained, meanings that you will saving in total debt payment by paying less interest on credit counseling service. On the other hand, debt reduction program involves a negotiation to reduce the total debt amount, which can range from anywhere between 20% to 60%. In a debt reduction program, you pay less in total debt which one of the advantage over credit counseling service.

3. Duration Of Debt Liquidation

Credit counseling program requires longer time to be completed than a debt reduction program. Generally, a credit counseling program will take about 5 years to liquidate debt, whereas, a debt reduction program often allow consumers to retire their debts in less than 2 years, but there are people manage to do in less than a year .

4. Credit Accounts

Most credit counseling programs will require you to close all your credit accounts. Although there are a few exceptions that allow you to retain account for business needs, most often you need get your accounts closed if you choose the credit counseling service. On the other hand, there is no such requirement to close all your credit accounts in a debt reduction program. You will still allow to remain all your credit accounts active. It will be much more convenient to have credit cards, especially the cards standby for emergencies uses. However, keeping your credit cards may put you in risk of creating more debts to be added into your existing balances. So, if you are a person who can't control the use of credit card, then credit counseling program might be a better option for you.

Summary

Now, you have a better idea on what are the differences between credit counseling and debt reduction program. You should consider them when deciding which option best fit your need for debt relief.

Your phone keeps ringing but you are afraid to answer it because you know the calls are not from your friends or your family. Instead, your phone line is tight up by the harassing calls from your creditors or debt collectors demanding their money. As long as you don't pay what you owe to your creditors, the situation will be continued and your debt will keep snowballing to a bigger level which you will find harder to resolve it later. Fortunately, there are ways to resolve your debt issue, and one of these is consumer credit counseling.

How consumer credit counseling actually works to help the debtors to resolve their debt issue? Let see how it works before you decide whether this debt solution is able to resolve your debt problem, or you need to find other way for debt relief.

The key function of consumer credit counseling is helping debtors to rebuild and reestablish their credit by creating a debt repayment plan that fit the financial affordability of the debtors. When you approach a consumer credit counseling service, basically, you will go through three-part in a credit counseling program:

1. Financial Assessment

You will be assigned with a counselor who will perform an assessment on your financial condition to understand how badly your debt problem is. Not all debt conditions will best benefit from consumer credit counseling. Based on the assessment result, the counselor will let you know whether you debt issue will be best fixed by consumer credit counseling.

2. Establish A Restructuring and Repayment Plan

If your financial condition is applicable for consumer credit counseling, the counselor will help you to establish a debt repayment plan that fit your financial affordability. During the process of working out a debt repayment plan for you, the counselor will negotiate with your creditors to minimum debt interest rate or waive part of the interest. Normally, the credit counselor won't negotiate the overall amount of your debt; instead they work on the interest. Hence, if you are hoping your total debt amount can be reduced after negotiation, then you will need to work with a debt negotiation company instead of consumer credit counseling. A debt repayment is established once an agreed terms and conditions are met between you and your creditors. You need to follow the debt repayment plan and work your way out of debt while restructuring your credit.

3. Credit Education

Then, the credit counseling agency will give credit education that teaches you how to manage your money effectively so that you won't fall back into debt again after you get rid of it. The credit education can be the most important step which you should not avoid it because by learning about credit and money management help you keep your newfound financial freedom for the rest of your life.

Summary

The consumer credit counseling basically involves three steps to identify your debt condition; then it will propose a solution that involves a debt repayment plan; and finally provides credit education to help you stay out of debt forever.

Your credit history will determine your credit worthiness and the interest rate you will pay when you apply for credit. That's why it is important to maintain good credit with your best effort, but unfortunately sometime it is out of our control and we are forced to live in bad credit situation. As a result, an increasing number of people are getting help from consumer credit counseling agencies to resolve their debt issues. However, consumer credit counseling may not be the best option for everyone. Then, how do you know that getting assistance from consumer credit counseling is right for you?

There are many types of debt relief solutions that you can use to reduce and resolve your debt problem. Among the common one is consumer credit counseling which involve financial education offered mostly by non-profit organizations to get people out of debt. Beside the advices and education courses on money management, consumer credit counseling often tight with the aid of a debt repayment plan that requires you to make a monthly deposit to the credit counseling agency, which will then pay off to your creditors according to a payment schedule set by your credit counselor. Overall, it is a good option to approach a consumer credit counseling agency, but it has some limitations that you have to know before your select consumer credit counseling as your debt relief option.

Credit Counseling Limitations

1. Can't Help To Reduce Debt Principal

Credit counseling services can't help you to reduce the amount of debt principal you owe. You need to go for a debt negotiation or debt settlement services if you look for the potential reduction of the amount of your debt principal. What the credit counselor may help are:

• Reduce or waive your interest rate agreed by creditors.


• Reduce your monthly payment by prolong the debt repayment period so that the amount used to pay your monthly debt is within your financial capability.

• Secured debts such as mortgages and car loan.


• Current bills for utilities.