The most important difference between these two programs is
that with credit counseling, you pay back all of the debt
balances,
plus interest and fees, whereas with debt
settlement, you pay
back only a portion of your debt load. That's why debt settlement
is a much faster path to debt freedom (2-3 years) than Credit
Counseling (5-9 years). This means a lot less money out of your
pocket is used through the debt settlement approach.
Another
key difference is that your debt settlement firm works solely
for you, the consumer, and receives no compensation directly
from the creditors. In other words, your debt settlement firm
is truly on your side. With a credit counseling
agency, there
is a dual relationship, where part of their income comes from
the client and the majority of it comes from kickbacks paid by
the creditors. This creates a built-in conflict
of interest and
creates doubt as to whose side the agency is really on. Also,
debt settlement provides much more flexibility than credit counseling
in both the monthly budget level and the types of accounts that
may be enrolled.
For example, if you have a really tough month
and need to skip a payment, that situation can be absorbed by
a debt settlement program, whereas it will cause serious problems
with a credit counseling program. Further, if your accounts have "charged
off" and gone into the third-party
collections cycle, you
can still enroll those obligations in a debt settlement program
where they will be rejected by a credit counseling agency.
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