Debt Reduction vs. Credit Counseling Programs

Whenever you have unsettled credit card accounts or unpaid monthly payments, then you are in an uncomfortable situation that is also experienced by thousands and even millions of people worldwide. Most people would go to filing bankruptcy not knowing that this would greatly impact their reputation financially. Did you know that bankruptcy can damage your image for a minimum of 7 years? Instead of bankruptcy, there are other ways of solving this problem such as getting a debt reduction program or getting credit counseling.

Before choosing an alternative program, debtors should be made aware between the differences of the two. First, a credit counseling program will often require a debtor to close all their existing credit card accounts. On the other hand, a debt reduction program will not require such action from the debtor. This is very advantageous especially for emergencies or times when debtors need to purchase something so badly.

Another difference between the two programs is that credit counseling may take a longer time to clear the debts. Debtors will need to live and settle with their debts for as long as 5-8 years. On other hand, a debt reduction program may clear the debt faster. It can even clear the debt in less than a year if given enough attention.

A debtor may also save more money on debt reduction programs as the debtor may negotiate to lessen the total amount of debt. It will also lessen the interest rate to also relieve the debtor of the burden of paying significantly large monthly payments over time. A credit counseling service, on the hand, will require a debtor to pay fully the required amount for the debt.

The credit score of every debtor may also be affected whenever he/she applies for a debt counseling service. Credit-reporting agencies will often update the status of every account whenever monthly payments are done. If a debtor fails to pay for a particular month, his/her credit score will be lessened. A debt reduction program will not affect the credit score of a debtor.

And lastly, a debt reduction program will often based the details of the payment with the payment capacity of every debtor. The creditors are well informed of the present situation and the hardships faced by the debtor in coping up with the repayment. This will help lessen the amount of debt and also help the debtor recover financially.

A debt reduction program has its significant advantages over a credit counseling service. But whatever program a debtor may choose in solving a particular financial problem, the best secret is to work hard in avoiding more debts and avoid overspending.