On the one hand, credit counselling can be a good way to resolve debt while avoiding bankruptcy. On the other hand, it can be like an onion; once you peel back the layers, you may cry after you see what you are getting into.

Consumer credit counselling service companies organize themselves as either for-profit or not-for-profit. What credit counselling companies do (regardless of profit status) is arrange for you to pay back your full principal balance(s) on terms that are easier for you to service. That usually means a longer amortization term with a reduced interest rate. Remember not-for-profit does not mean free, they still charge you a fee.

What this means is that if you owe $20,000 and you are paying an average of 19% interest on all your debts, you will still owe $20,000 but they will hopefully reduce your interest rate to about half of your original interest rates and hopefully set a lower payment over a longer period of time. There are no guarantees with credit counselling, and your creditors do not have to accept the offer. Provided you can afford the entire plan and fees, you will be debt free at some point for around $30,000 to $40,000.

Credit counselling is reported to your credit report as a R7 and viewed negatively by every credit grantor. As a result, if you are in a 5 year repayment plan, don’t count on using credit cards, getting a car loan or mortgage for the next 5 years plus the time it takes you to re-establish your credit rating.

The origin of credit counselling goes back twenty or more years to a time when credit grantors got together and created it in order to recover money from people experiencing difficulty in paying debt. The new consumer credit counselling banner at the time was distanced from the credit grantors under a friendly not-for-profit status which created trust and it worked well with the public. People signed up in droves. What credit counselling companies usually don’t tell you is not only do you pay them for the service, but in many cases they are actually receiving compensation from the very creditors you owe.

This fact has raised the frequent suggestion that credit counsellors are essentially a slightly friendlier “bill collector” for the creditors. It is often seen as a conflict of interest and raises many concerns and criticisms.

If you owe less then $10,000, and your financial hardship is only temporary then credit counselling probably isn’t a bad idea and a good alternative to bankruptcy. However, people still fail at credit counselling plans because they take a long time and a lot of money is consumed by fees over several years.

Debt settlement or debt negotiation is a far better alternative for many, to credit counselling. Unlike credit counselling, debt settlement actually reduces the total overall debt owed to about half of what you owe. All credit counselling will do is give you a small break in your interest rate, but you will pay back the full principal balance and usually over a longer period of time.

Debt settlement is often much less expensive, faster and will affect your credit rating to a lesser degree.

If you owe more than you can manage, consider debt settlement as an option. It’s an excellent opportunity to wipe out your debt quickly while saving you a substantial amount of money without doing the same damage to your credit rating as bankruptcy would.

Don’t be afraid of dealing with your debt. Bad things can happen to good people. We are only human. The worst mistake you can make is putting it off. Either way, if you choose debt settlement or credit counselling, start your path to debt freedom as soon as you can and get on with living life totally debt free today.

If you feel it’s time to do something about your debt, and want a free debt settlement consultation then please visit our home page and request a no obligation quote.