When you’re facing monumental debt, finding a workable solution is of paramount importance. Understanding your options can help, but sometimes that’s easier said than done. Two popular options – consumer credit counseling vs. debt settlement services – offer some similar features but are different enough that they should be considered for different reasons. Here’s what you need to know about the similarities and differences of these debt relief options – and more information to help you determine which one might be best for you.

Consumer Credit Counseling

Most credit counseling agencies are non-profit organizations. They provide counseling and advice, rather than doing any debt reduction for you. They are best for people who want to clear their debt and their names and genuinely want to repay what they owe but are having a hard time doing so. Through planning and restructuring – including lengthening your repayment schedule, reducing interest rates and other streamlining of costs – these agencies can help make monthly bills more manageable for those struggling with debt. Think of credit counseling more as reorganizing the amount that you owe, rather than taking anything away from that amount.

As your credit counselor works with you, they will also work with the creditors and debt collection agencies that are pursuing you for collections or repayment. While you are working on the plan put in place for you with the help of your credit counselor, you will typically not be asked to pay late fees, interest, or other penalties. Rather, you will be responsible only for your lower, negotiated monthly repayment costs.

Debt Settlement

Debt settlement is exactly what it sounds like. It is a service – typically offered by for-profit organizations – to help consumers get rid of a chunk of their existing debt. While negotiation is part of this debt relief strategy, the other major component is lump sum repayment. For most consumers, this involves saving person funds in a separate account designated for lump sum repayment. While consumers do still have access to and control over these funds during saving, they also must plan to set these funds aside. Some debt settlement companies offer to do the paying upfront for you, but then you may be stuck with hefty fees attached to your repayment.

It’s important to know that debt settlement companies that promise great results but demand upfront payment for their services can pose a danger to debt-ridden clients. If a company does this to you, consult with a legal professional or simply take your business elsewhere. Paying for help is one thing – paying only to receive substandard service or no help at all is quite another. Because of less-than-reputable companies doing exactly that in the past, the Federal Trade Commission has introduced regulations requiring several obligations be met by your provider before any money can be requested for payment.

These qualifiers include:

• Something must have been a success, whether it was debt reduction, negotiation, settlement, or some other solution. Positive, demonstrable results must be present.
• An agreement should have been established between the client in debt and the collection agencies or creditors that they owe the repayment to.
• At least one payment must have been made before the debt settlement is considered finished. Once your plan has been created and an agreement has been reached, the first payment to your creditors or debt collection agencies must have been made before you can be asked to submit payment for your settlement professional’s fees.

It’s also important for consumers to be aware that many creditors do not negotiate with these companies. This means that no matter how hard your debt settlement professional works on your behalf, there may be little or nothing that they can do to eliminate or lessen your debt.

Credit Counseling vs. Debt Settlement – Direct Comparison

Now that you know a little more about each of these types of debt relief, let’s look at credit counseling vs. debt settlement directly. This point-by-point breakdown may help you bring the right choice into clearer focus.

• Consumer credit counseling providers are usually part of a non-profit organization. Debt settlement providers generally charge for their services, although they typically do not do so until after services are successfully rendered.
• Credit counselors offer advice on money management and help you create a plan of action for paying down your debt in a way that works for you. Debt settlement organizations typically offer an arrangement with creditors and debt collectors on your behalf.
• While debt settlement companies typically advise consumers to cease repayment of their debts while an agreement for debt relief is in the works with creditors and collection agencies, credit counselors do not. Credit counselors will advise clients to continue their repayment as normal until creditors can be reached for negotiation for lower, slower, or otherwise more manageable payments.
• Debt settlement companies may pay your debts down in a large lump sum, with you then becoming responsible for monthly repayment to the debt relief company – or which you are completely responsible for saving for in the first place. Credit counselors do not do this – in fact, they may not even negotiate any kind of debt forgiveness at all – but rather help you to talk to your creditors about lowering your monthly payments to a lower, more manageable rate.
• While the repayment plans made with the help of credit counselors don’t generally have any impact on your taxes, debt relief may be taxable.

After careful consideration, the most important thing to remember is this: when it comes to credit counseling vs. debt settlement, neither can rid you entirely of the debt you have. If you do not make enough money or have enough assets to repay your debt – even once payments are negotiated down or overall debt is reduced – your best bet may be an entirely different avenue. Options such as bankruptcy may be in order if these descriptors sound like your situation. Regardless of what you choose, the best decision you can make is to move forward with thought and care – and consult a financial legal professional, if you feel unsure. After all, this is your financial future you’re dealing with. Don’t leave it to chance.