What Are the Differences Between Debt Reduction & Credit Counseling?
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.
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