Debt management, or debt help, can come in numerous forms, and you should choose the one that works best for you according to your personal financial situation. While credit counseling helps debtors emerge from the debt trap by helping them manage their finances, debt settlement is their last resort before filing bankruptcy.
Debt Help through Credit Counseling Services
By working as an intermediary between consumers and credit card companies, credit counseling agencies can help you recover from your debt by putting your finances in order. Credit counseling services can benefit you in a number of ways, including the following:
Review of Your Budget
On the basis of a review of your financial situation, your counselor can create an affordable monthly payment plan that can be agreed upon by both you and your creditor.
Debt repayment can proceed for a period of 5 years, based on the size of your debt and how much you can afford to pay each month.
The fee for credit counseling services depends on your ability to pay. While some agencies may accept monthly payments, others expect payment upfront. You should understand the terms and conditions completely before signing any credit counseling agreement. You can also come to a final decision after comparing various credit counseling services personally or online.
Debt Repayment Plan
Depending on the terms of your new repayment plan, your creditors will be paid a monthly amount. You should keep a regular running tab to monitor the promptness and regularity of the payments to your creditors.
Interacting with Creditors
Your credit counselor will communicate directly with your creditors on your behalf once your debt repayment plan has been finalized. This saves you the stress of threatening letters and frustrating phone calls from creditors.
While your credit card balances cannot be reduced through counseling services, your interest rates and credit card fees can be lowered with this type of debt help. This can enable you to clear the pending amounts within a shorter span of time. However, it is important to remember that any debt that cannot be repaid within five years may not be eligible for resolution through credit counseling.
Debt Settlement: to Avoid Bankruptcy
Debt settlement is the only option in the event that your credit balances are so high that you are planning to file for bankruptcy. In such a situation, a debt settlement company can negotiate a reduced amount on your behalf to pay off your debts. If this is agreeable to your creditors, you will then pay a smaller quantity than the actual amount borrowed to settle your debt. You should take care to pay for settlement service only after receiving an itemized cost statement and written documentation of the services provided. Debt settlement services advise clients to save money for paying the settlement amount instead of paying their creditors. While this can damage your credit, this is the only option if you are planning to file for bankruptcy.