Credit Card Debt Solutions 2010 - Debt Settlement Vs. Consumer Credit Counseling

Online, September 8, 2010 (Newswire.com) - Often, people hear differing stories from friends and relatives who have tried various popular debt relief solutions to resolve their credit card debt. While one option may have worked for one person, it may not be a good solution for others. It is important to understand that when it comes to eliminating unsecured credit card debt, consumers need to choose a strategy based on their individual situations. Picking the right debt relief strategy could knock years or thousands of dollars off of debt repayment. Picking the wrong one could have the opposite effect.

Credit counseling and debt settlement are two debt relief options that many consumers frequently group together. While they do have some aspects in common, they actually resolve credit card debt very differently. Before choosing one or the other, consumers should understand the basics of each, including who benefits most from each solution, how the process works and the advantages and disadvantages of each.

First, let's discuss credit counseling. Before choosing a credit counselor or counseling agency, consumers will want to do their research. Like any business, there are good and bad counseling programs, and finding a legitimate company is the first step in getting the best deal on debt repayment.

Credit Counseling

Who should use it:

- Consumers with unmanageable credit card debt
- Consumers with multiple card debts or loans
- Consumers who don't want to negotiate with creditors
- Consumers with bad spending habits or financial behaviors

How it works:

Credit counseling is a good debt relief option for consumers who have trouble paying off debts because they are dealing with many creditors and because they lack discipline in spending habits. These counseling programs do exactly that; they counsel clients on how to better manage their debts and implement better financial practices such as budgeting and not overspending. The counselors will help deal with their clients creditors to develop a repayment plan and lower interest and fees that could be keeping them in debt longer. It's crucial to note that credit counseling agencies do not negotiate their clients' debts, only fees and interest rates. So for those that don't fit into most of the categories above, this may not be a good debt strategy.

Advantages/Disadvantages:

One advantage of credit counseling programs is that clients only have to make one monthly payment for all of their debt. The agency will disperse this payment to creditors on the client's behalf and deal with creditors so their clients don't have too. The counselor will also likely negotiate lower interest rates, extend loan terms and eliminate card fees for clients to help them pay back debt faster. The downside of going through a credit counseling program is that many of their services are ones consumers can do themselves. For consumers who feel they can take the initiative to work with creditors on their own, do-it-yourself credit counseling may be just as effective as going through a professional agency.

Another option for credit card debt solutions is debt settlement. Like credit counseling, consumers will want to find legitimate debt settlement companies or firm before committing to a program. There is also the option of do-it-yourself debt settlement. But for now, let's focus on professional debt settlement programs.

Debt Settlement

Who should use it:

- Consumers with $10,000 or more in debt
- Consumers who want to reduce their debt balance
- Consumers who want to pay of debt quickly
- Consumers who are on the verge of bankruptcy
- Consumers who want to avoid future bankruptcy

How it works:

Debt settlement firms will negotiate a client's total debt by working with his or her creditors to agree on a reduce lump sum repayment. Creditors will often agree to reduce the borrower's debt by 40 to 60 percent, meaning debt settlement clients often pay back much less than their original credit card balances. The consumer must then pay back this new, reduced balance in a time frame agreed upon by the agency and creditors.

Advantages/Disadvantages:

Legitimate debt settlement programs can shave significant time and money off of debt repayment. Because the consumer pays back less money, they can pay back creditors faster and in a time frame that is much more manageable. For clients with $10,000 or more in debt, this can mean saving thousands of dollars and getting back on the road to living debt free in just a few years. One downside is that some consumers may not qualify for a debt settlement program if their debt is under a certain minimum amount. Many debt settlement companies require a minimum debt balance for eligibility into their programs. However, this amount varies from company to company, so it is important for consumers to do research to find a program that works for them.

Debt settlement is a legitimate alternative to filing bankruptcy however it is not the only debt relief option available. Check out the following link to speak with a certified debt relief specialist who will go over all your options for free:

Free Debt Relief Advice