What you need to know about credit card debt settlement and credit counseling

The difference between debt settlement and credit counseling

Welcome to my Hub Page. I would like to help you understand the differences between debt settlement and credit counseling. I am a debt analyst and have been in this business for over 7 years now. I am able to help people get out of debt and back on track, unfortunately it is all too often I find out that people I speak to were given a sales pitch from another company saying debt settlement is a magic program and there are no downfalls.

This is not the case. Anything other than paying your credit cards on time and not exceeding the limits is pretty much the only way not to have a negative affect on your credit. Debt settlement is mostly for people that are having problems paying the minimum payments or have already fallen behind. If you can afford your minimum payments and do not want to affect your credit score then debt settlement may not be for you. On the other hand there are also a lot of advantages to debt settlement. Which I will talk about in a few minutes

A credit counseling agency will attempt to lower the interest rates on all of your accounts. Then you will make one monthly payment to credit counseling agency, which they will pay your creditors each month for you. What most people don't know is that your creditors are going to report you to the credit bureaus letting them know that you are in credit counseling program so this does read very negatively on your credit report.

In addition although your creditors may lower your interest rates they are also going to report you in collections by a third while you are in the program. So, in most cases you credit does take a big hit. Another drawback is that it will take you between 4-6 years to complete the program and by that time you will have paid back about 120 to 130% of what you owed.

With a credit counseling program if you miss one payment they will kick you off the program and will not let you back on for at least one year. Then you will be right back in the same situation if not worse. Remember your main objective is to save money and get this put behind you as fast as you can so you can start to rebuild your credit.

Debt settlement or also know as debt negotiations is where a company negotiates the balances on your debts. When you are using a good debt settlement company they will reduce your debt by negotiating directly with your creditors so you don’t have to. The advantage of using a debt settlement company is that they can negotiate better settlements then if you were to do it on your own. The reason for this is that every company has their own procedures when settling a debt. If you say the wrong thing you can jeopardize any chance of being able to settle your debt.

A lot of people think that they can get better results if they speak with the creditor themselves. This is where people get in the most trouble because without understanding the whole process and knowing the laws you have to be very careful. When a debt settlement company negotiates your debt they have more leverage because of the amount knowledge and experience in dealing with your creditors.

If the company knows what they are doing and have your best interest in mind you can save at least 45% of what you owe today. Some accounts can be settled for as little as 20 cents on the dollar, it all depends on the creditor or collections company. When you are in a debt settlement program you don't want to look at it like a loan by seeing how long you can extend the payments.

In order to save yourself the most money you need to look at it as how fast can I get this paid off. If you really want to save yourself the most money and get back to building up your credit then this is what you need to do. There are different types of companies involved in debt arbitration. About 85% of the companies are pretty new to the business and really have not put in the years to build a good reputation. If you find a company that has been around less than two years, then you won't know what they can do for you. A debt settlement program is usually 2 to three years to complete the process to becoming debt free.

Now I am not saying that every credit card debt negotiations company is good or bad and are there for the wrong reasons. A lot of them are in this business just to make money at all cost and do more harm than good. Just like I tell my all my clients don't take my word for it. When dealing with any company it is your responsibility to do your homework.

There are too many companies out there who could care less about you and just want your money. They sell you on the idea that everything is going to be really easy and not to worry about it. You have to understand that it does take a lot of work on behalf of both you and the company you are dealing with.

Some companies will tell you in the first few minutes of a call that they can help you and all you have to do is pay this amount and sign the contract right now to get started. STOP right there if that is the case with any company you are speaking with. How can they tell you definitely what your payment will be without reviewing any of your statements and knowing about your situation?

I hear it on a daily basis how a company told them they could help them get out of debt only to find out 1 year later that they cannot work with that creditor. Now you have paid all that money and are even in a worse situation now than when you started. Please make sure the company has a good reputation because there are companies out here that what to help you succeed and get you out of debt.

When you find a company, make sure that there a credited company with the BBB and that they are in good standings. You also want to see how many complaints have been reported to the BBB. What you also need to realize is that even if a company has a few complaints it is sometimes from old employees who have been let go or fired, they also can come from competing companies.

You never can be sure but if they have a lot of complaints you should do more research on them. Never go on a program that is going to exceed 4 years because that is not going to benefit you in the long run. Remember the faster you pay of your debts the better chance you have to save a lot of money. Don't be afraid to ask them to see some of the letters from the creditors on their recent settlements.

When dealing with your debt and trying to find a company to assist you remember the old saying you get what you pay for. So don't be fooled by a company that is telling you what you want to hear and is making it out to be a walk in the park. It takes both sides to work together and come up with the right plan that will get you out of debt and save you the most amount of money.


Joe Jean

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Comments 11 comments

nomad79 8 years ago

Wow! You really put a lot of thought in this Hub. You have made it very clear on the different types of companies. I am glad I decided to look around tonight for help. I spoke to a couple of companies and was not at all happy, they kind of rushed me through and either was being very evasive or not telling me the hole story. It really seems like they could care less about my situation and keep on trying to get me to sign up right then. he didn't even know my hole debt amount and said it would be better to go on a 52 month program. I think he was only worried about making money. I am in need of help really bad,, I hope you can help me so I will be contacting you this week .Thank You very much.


Sarah Moore 8 years ago

Great post. keep up the good work and I look foward to reading your other hubs.


X Rated 8 years ago

It is crazy the way the credit card companies treat us. They will try to do anything to take our money from us and keep us from getting ahead. You are definitly right about a lot of these companies that say they want to help us get out of debt but all they really care about is taking our money and in some cases make the whole situatrion a lot worse. Really nice job on your hub.


melinda muir 8 years ago

Help I am in debt 46,000 and I am so stressed. We have hired christian credit debt mangement and they have said that american express will not work with us if we don't pay 369.00 a month and I have told CCC this and they say you pay it or you will have to take it off the program so I have called american express and they have done nothing but given me the run around so today I called and they are talking about working with us. My husband and I have been married for 18 years and we have never been in debt so deep that we can't see the end of the tunnel. Please help me I am stressing so much about this. I am a stay at home mom and if I go back to work in a preschool then I will be paying 2000.00 a month in daycare fees because I have no other jobs skills so we rely on my husband's income. He was working a really good job and it ended and the job he took does not pay as much. Help you maycontact me at melindaskids@pobox.com

Thank you,

Melinda Muir


josh 7 years ago

Is that really true that you can save me half of what I owe. How can you do that . I have been trying to work out a payment with them but they won't work with me. I just feel like not paying at all but I am not like that. It is not my fault I am behind. I was in a bad car accident and I can not work now. I can not afford to make the payments they want and basicly said it is not their problem and they raised my interest again this month. I want to pay it off but that is not good enpugh for them. why are they treating me like a piece of crap now. I have never had any problems with them before and now like that thay could care less. Please if you have any tips or advice let me know.


debt expert 7 years ago

Fantastic points!


multimastery 7 years ago

Hey Joe you hit the nail on the head with this one! There are surely a lot of shady debt companies out there promising people miracles and doing nothing. People really have to be selective with the company they choose to do business with. Great Advice!


Jody Maryland 7 years ago

Great Hub!!!!


Personal Money Management 7 years ago

Great hub, thanks for laying out the difference for us. Because most people take the credit counseling route and screw up their credit more.


celine 7 years ago

Joe,you did! Very clear, engaging, and useful. Now bookmarked. thank you very much...


John Smith 6 years ago

Wow! You did great about explaining credit card debt settlement. People really have to select the best company to have business with because most companies are still after for the money. Thanks for the advice!

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