Finding Out The Pros And Cons Of Debt Reduction And Credit Counseling

In today’s age as we indulge in more luxuries than required we find ourselves going deeper and deeper into the debt pit. Once we begin to incur debts they just go on accumulating thereby leading to tremendous stress in our lives.

There are certain ways called as debt solutions that help us to formulate ways to pay off these debts completely rather than finding ourselves bankrupt. Two of the most widely accepted solutions nowadays are debt reduction and credit counseling programs. These two programs work towards the same goal i.e. getting rid of the debts but they have certain significant differences as well. Some of these differences are:

Shut down Your Credit Accounts
In credit counseling programs, it will be made compulsory to shut down all your credit accounts other than certain accounts like those pertaining to your business needs or those with nil or very little balances. However in debt reduction programs, it is not necessary to close all credit accounts.

Completion Period

Credit counseling services generally require much more time than debt reduction programs to pay off the debt. On an average if the former takes about five years to get rid of the debt the latter will take less than a year to do so.

Cost Saving
Debt reduction programs have an upper hand over credit counseling programs in terms of costs saved. This is because while in debt reduction programs you may have to pay a sum of about 20% – 60% of the amount owed, credit counseling programs will require you to pay the entire amount owed with a small discount in terms of interest waived.

Credit Score
In debt reduction programs, details about the difference between the settlement sum and the amount owed called the “deficiency balance” may be sent to the credit bureaus by the creditors. This is regarded as a degrading aspect. Thus debt reduction programs affect your credit score much more as compared to credit counseling programs.

Bargaining Power
In credit counseling program, the credit counselor formulates a plan to repay the debt and submits it to the creditors. It is then dependent on the creditors to accept or reject his plan. However, in a debt reduction program the creditors will be intimated about your inability to completely repay the debt and the creditors have no choice other than to bargain to get back as much disbursement as possible.

Thus both programs have their own pros and cons.

Edward James Sentenera is the creator of Debt management Deals; a website specialized on counseling debt, resources and articles. Further info on counseling debt , debt management service at: debt management service .

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