What is difference between credit counseling and debt settlement?
Credit counseling is providing financial education to help you better manage your credit and other personal finances.
Many credit counseling services also can provide debt management plans, which involve negotiating repayment plans with your creditors. These plans often involve securing lower minimum monthly payments or lower interest rates, but do not cause the debt to be settled for a lesser amount. Such changes typically do not negatively impact your credit history as long as you continue to make all payments as agreed under the new terms.
Debt settlement typically is negotiating a reduced balance with your lenders, usually resulting in the accounts being reported as settled for less than originally agreed. Accounts reported as settled are scored negatively by all scoring models.
Be wary of organizations that pressure you to enter debt settlement programs and charge substantial up-front fees for their services, or that promise to remove accurate, but negative information from your credit report. The Federal Trade Commission has said that negative information, if it is accurate, cannot be removed legally from your credit report. Additionally, the Credit Repair Organizations Act (CROA) specifies what a credit repair organization must do before accepting any payment. Be sure you understand your rights and legal protections before agreeing to pay for credit repair.
Quality credit counselors will require you to participate in credit counseling and education programs either before or as a requirement for entering into a debt management plan. They will be committed to helping you not only address your current debt problems, but will also be committed to ensuring that you don't make the same mistakes again.
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