What is the Difference Between Debt Negotiation and Credit Counseling?

What is the Difference Between Debt Negotiation and Credit Counseling?

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Americans’ collective debt hit an all-time high in 2017. According to the Federal Reserve Bank of New York, Americans’ debt now totals $13 trillion.

That is $280 billion more than the record that was set during the 2008 financial crisis.

If Americans want to shake off this debt, they are going to have to start looking into debt relief solutions. Two such solutions are debt negotiation and credit counseling.

What is the difference between these two solutions? Which one should you choose if you are looking to eliminate your debt?

Let’s find out what exactly these solutions are. We will also take a look at the some of the pros and cons of each solution.

What is Debt Negotiation?

As its name suggests, debt negotiation involves negotiating your debt with your lenders. This process involves a mediator, usually a debt settlement company.

Debt negotiation is a powerful tool for people who are having a hard time making payments on their debts. Their mediators work with them to convince lenders to reduce interest rates and waive fees.

Debt negotiation has another benefit. It makes paying off debt simple. The process requires that you make just a single payment to your mediator each month. Your mediator then takes that money and makes the appropriate payments for you. Debt negotiation helps you to lower the amount you pay back, saving you money and helping you to address large amounts of unsecured debt.

It is not for everyone. There are a few limitations to going this route, which we have detailed in the next section.

The Limits of Debt Negotiation

Despite debt negotiation’s benefits, it is not the solution for everyone because it does not just magically settle all of your debt.

As it turns out, you cannot settle any amount of debt you would like. If anyone tells you otherwise, he or she is just spouting one of many myths about debt settlement.

Debt negotiation can also affect your credit score. Do not worry. You will be able to bounce back quickly once you have settled your debt. That is because you will have cleared a large amount of outstanding debt from your credit report and any late payments will lose their impact over time.

What is Consumer Credit Counseling?

Consumer credit counseling’s primary goal is to inform consumers. Credit counseling services, known as Consumer Credit Counseling Agencies, provide educational resources and help consumers set budgets. They also teach people how to manage their finances in order to prevent racking up more debt.

Unlike debt negotiation, credit counseling does not affect your credit score as long as you use a reputable credit counselor.

The Limits of Credit Counseling Services

There is one huge drawback to choosing credit counseling over debt negotiation. The counseling is less about negotiating lower interest rates on your behalf because its primary goal is to educate you. As a result, people who seek out credit counseling should be prepared to pay their debts in full in most cases. Also, many of these agencies are funded by the creditors that you are trying to settle with and this could mean your repayment plan is not in your best interest.

When you consider the fact that half of Americans were never formally taught about credit cards, it is not surprising credit card debt is on the rise.

So Which Solution is Right for You?

Which solution is right for you? Are you leaning towards debt negotiation? Or is credit counseling more your speed?

Regardless of which solution you choose, we wish you the best of luck because being debt-free feels good and is beneficial to your physical and financial health.

Have questions about how to achieve financial freedom through debt negotiation? Contact us to receive your free consultation.

The Effective Legal Debt Solutions team is comprised of caring, seasoned professionals with years of industry knowledge coupled with personal real-life experience of dealing with debt settlement situations that many of our clients are facing today.