Is your life overcome with financial debt? Are you considering the options of credit counseling or a debt reduction plan?
There are several major differences between these two options
When you enroll in a credit counseling program you will typically be required to do away with all of your credit accounts. You will have some concession though to keep accounts that are required for business or have very low balances. With a debt reduction plan there are typically no such restrictions and you’ll be able to keep your current credit accounts. This will give you the option to pull from those accounts for emergency expenses or family needs.
When compared to credit counseling a debt reduction plan can rid you of your debts in a very short time frame. Most credit counseling programs can take an average of five years and sometimes more to completely eliminate the debt where a debt reduction program can sometimes liquidate the entire debt in a year or two and even less. Debt reduction plans are really designed to have you pay much less than the actual amount owed whereas credit counseling still has the entire debt and interest amounts.
Debt Reduction Plans Reduce The Principal
In credit counseling the interest rate is negotiated down to a lower rate on your existing credit or debt. Debt reduction programs are a bit more radical in that the entire principal amount (the actual debt itself) is reduced by sometimes 40% to as high as 80%. This can make a huge difference in the time to pay off the debt. The industry average for debt reduction plans is a principal reduction of 50%. This is an attractive part of these plans.
Credit Score Differences
Credit counseling and debt reduction programs both affect your credit score differently. A credit counseling agency will typically re-age the accounts after the first three payments are made on the accounts. There are no changes like this made on a debt reduction program as the account status does not change.
Accounts that are current are fine but accounts that are past due will remain that way. Debt reduction programs give the client more bargaining power but also require a great deal more negotiation with the creditors.
Each persons individual needs are different and your particular situation will dictate which plan is best for you. It pays to get a second opinion from someone who is familiar with both options before making your decision.