Credit Counseling and Other Options

Ever heard of credit counseling? You are considering consolidating your debts and tightening your spending as the world economy hits a recession. There are so many options to solve any debt problems you may find yourself having - bankruptcy, loan consolidation, debt settlement and credit counseling. They all have benefits, just make sure to do proper research before you make a decision about the right option for you, although my personal preference is credit counseling.

Debt Consolidation

Debt consolidation differs from credit counseling in that it requires a homeowner to take out a second mortgage using any equity in their home as collateral. You can then pay off any outstanding debts or unsecured loans, and repay the debt in one monthly payment. While this may seem a good solution, consider the fact you have used the equity in your home to pay off unsecured debts. By putting unsecured debt on to your home loan, you effectively pay off more over the long run as the term of your home loan may be 20 years or more.

Something else to think about is your home is now collateral for the second mortgage (and your unsecured debt). If you default on the second mortgage the lender may foreclose on your home. Is this what you want? Think carefully before putting your home at risk to pay off unsecured debt, and consider credit counseling.

Debt Settlement

Debt settlement is also different from credit counseling and is the process of negotiating a lesser amount than owed to clear the debt. Most creditors will not take you seriously unless a debt settlement company does this on your behalf. The aim of debt settlement is to negotiate a lump sum payment that can reduce your debt by up to 50% on average.

This may not be an option if the majority of your debt is on your credit cards. Credit card companies do not like this form settling debt and are likely to initiate other forms of debt recovery for the outstanding amount. But if worst comes to worst, a credit card lender prefers to get something rather than nothing, and a debt settlement company may be able to negotiate a solution for you. If you are thinking of bankruptcy as an option then maybe debt settlement can be an option worth exploring for you, or maybe credit counseling will suit you better.

Credit Counseling

Credit counseling gives you the chance to take a long hard look at your finances. Credit counseling gives you advice and assists when negotiating with your creditors. Sometimes credit counseling can even negotiate lower interest rates for you through their connections in the finance industry.

There are two types of credit counseling agencies. Non-profit credit counseling agencies which charge fees based on your debt and ability to repay it. Then there are the credit counseling agencies that are for profit who charge account setup fees and ongoing monthly fees until your debt is completely settled.

Whatever you do, make sure you research all the credit counseling options available before you commit yourself to any sort of repayment plan to settle all your debts. If you do your research and work with a debt settlement or credit counseling firm closely, there's no reason you won't be able to get out of debt as soon as possible.

Debbie White is a contributing writer to http://www.curadebt.com and is currently writing some special articles to guide businesses on how to manage debt and avoid bankruptcy. For Credit Counseling Information and Debt Help Consultation, call toll-free 1-877-850-3328.