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Debt Settlement Vs. Consumer Counseling

by Matthew Bleicher
  • Overview

    Debt settlement and consumer counseling have some things in common in terms of debt management; however, the effect on your credit score and your debt are quite different.
  • The Upside to Debt Settlement

    Debt settlement is a process whereby you or an agency contacts your creditors and works with them to reduce the total amount you owe on the loan. This can reduce your payments by 40 to 60 percent.
 
  • The Downside to Debt Settlement

    In order for this to work, typically you have to stop paying on your debt for a while. This will severely damage your credit report in at least the short term.
  • The Upside to Consumer Counseling

    Consumer counseling helps you set up a monthly budget that you can afford that will last until your debt is paid off. They will also contact the credit card companies and try to reduce the interest on your loans to a reasonable level.
  • The Downside to Consumer Counseling

    So long as you are in the program, and you will typically be in the program for about five years, it will be on your credit report that you are seeing a counselor.
  • Bottom Line

    The consumer counselor is the better of the two options. While it does put a negative on your report, it also shows that you are paying off your debt. The settlement option should only be used if you cannot even pay the amount that a counselor puts together for you.

    References & Resources