Debt consolidation and credit counseling are two popular methods that can help a person to manage as well as pay off the outstanding debts. The former is a debt relief program offered by consolidation companies and the latter is a counseling session that is offered by the credit counseling organizations. Read on to know about these debt relief methods in details and check out how they differ from one another.
Taking help of a credit counseling service
You can go for a credit counseling session if you’re not able to manage your loans/debts on your own. In a counseling session, a credit counselor examines your financial situation and offers suitable suggestions to manage your debts properly. One of the greatest benefits of credit counseling is that the counselor offers a personalized debt relief plan, by following which, you can repay your debts on your own. Moreover, through a counseling session, you also get budgeting tips to manage your personal finance properly.
Enrolling in a debt consolidation program
In a debt consolidation program, a debt consultant, on behalf of the consolidation company, negotiates with your creditors to reduce the interest rates on your existing dues. He/she also makes an affordable monthly payment plan with the help of which you can repay your outstanding debts. In short, it can be said that a consolidation program helps you to pay off your dues in a systematic way.
Differences between the 2 debt relief options
The differences between a debt consolidation program and a credit counseling service are summarized below.
| Debt Consolidation | Credit Counseling | |
| Fees for the service | Need to pay a professional fee. | Fees are comparatively less. You may also go for non profit credit counseling service. |
| Enrollment | Need to enroll in a consolidation program. | No need to enroll in order to take advantage of the services provided. |
| Scams | Greater chances of being a victim of scams as you need to enroll in a consolidation company. | Relatively lesser chances of falling prey to scams as you don’t have to enroll. |
| Negotiation with creditors | Debt consultant (on behalf of consolidation company) negotiates with your creditors on your behalf. | If required, you need to negotiate yourself with your creditors. |
| Interest rates on loans/debts | The interest rates on your loans/debts get reduced to some extent. | Interest rates cannot be reduced unless the credit counseling organization offers a debt management program. |
| Programs offered | Consolidation companies offer debt consolidation programs. | Credit counseling organizations offer debt management advice. |
Both credit counseling and debt consolidation are favorable for your credit score. Most of the counseling agencies don’t report it to the credit bureaus when you go for a counseling session. When you repay your debts with the help of a consolidation program, the accounts get updated on your report as “paid in full”. Therefore, it has a positive impact on your future creditors.
It can be said that credit counseling is the first step that you can take towards clearing your dues. Therefore, go for a credit counseling session and if necessary, the counseling agency will offer a debt management plan, with the help of which you can pay off your existing dues. A debt management plan is similar to a consolidation program, only difference being that the latter is offered by a consolidation company.