Debt Settlement Versus Consumer Credit Counseling - Which is the Most Effective in Eliminating Debt?

Consumers are currently faced with what seems like the never-ending burden of overwhelming debt, and many have discovered that they can no longer afford their monthly financial obligations. If this sums up your situation there's hardly a doubt that you're in the process of determining the best path in order to eventually live a debt-free lifestyle, or at the very least be able to easily afford your monthly bills.

Perhaps this search has led you to information regarding Consumer Credit Counseling and Debt Settlement, but you're not entirely sure which choice is best for you. Let's review these two debt relief options so that you can compare the pros and cons of each, and subsequently conclude which - if either - will best assist you in becoming free from debt.

Consumer Credit Counseling

After signing up for this type of debt relief through a consumer credit counseling agency, representatives will contact your various creditors in an attempt to get your interest rates reduced. In most instances consumer credit counseling agencies do successfully get your rates reduced, but oftentimes the rate of reduction is not significant; it is, however a reduction nonetheless.

You will begin making just one payment, which will be directed to the consumer credit counseling service that you hire, and they will subsequently distribute your monthly payments to your creditors. Your new monthly payment is typically lower than what you were paying when you were making regular payments to each individual creditor.

Normally people are enrolled in this type of service for at least five years before their debt is paid off in full. Of course, you'll realize no savings, as you are still responsible for paying off your total balance to each of your creditors; but you will at least have a re-payment plan with some amount of reduced interest.

Prior to signing up with a consumer credit counseling service be sure to be diligent in your research; many of these agencies claim to be "non-profit" when they are in fact funded by your creditors. This leads one to believe that the loyalty of these service agencies lies with your creditors and your best interests are not really looked after. Again, diligently research any agency you may be considering.

Debt Settlement

Debt settlement differs from consumer credit counseling, in that it is intended to eliminate your debt much quicker, and also significantly reduce your overall debt amount by approximately 50%. Typically consumers choose debt settlement when they simply can no longer keep up with their monthly payments, and have decided to attempt to pay their creditors at least something, as opposed to filing for bankruptcy.

Normally credit card accounts must be classified as delinquent prior to creditors willingly entering into negotiations to reduce your payoff amount. Because of this, if your credit is fairly decent you'll likely notice a decrease in your credit score as a result of this delinquency. To learn more about debt settlement and your credit score, click here.

When an account is sufficiently delinquent you (or the professional debt settlement firm you hire) will then begin negotiating with your creditor to settle your account - typically for 30%-50% of the current balance. If sufficient funds don't exist for the agreed-upon settlement amount most creditors will agree to break the settlement payment up and allow you to make anywhere from two to six monthly installments.

As is the case with consumer credit counseling services, it is imperative that you are diligent in conducting sufficient research prior to hiring a professional debt settlement firm. For information on factors that should be considered when determining which firm you will ultimately choose, click here.

Hopefully this piece has provided you with useful information regarding the process of debt elimination through consumer credit counseling and debt settlement. I sincerely wish you the best and hope that you will soon be on your way to finally eliminating your debt for good.

Marie Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit http://www.donaldsonwilliams.com