Less than 10%. That’s how many consumers that try a debt settlement program complete it successfully. It’s a difficult number to wrap your head around.
On the flip side, a recent NFCC study found that 75% of consumers that used credit counseling reported that they were paying their debts more consistently. Additionally, two-thirds of these customers stated that they were better at managing their money and had more confidence in financial matters.
While debt settlement companies often make bold predictions such as having you “debt free in two years” there are numerous factors that you must consider before choosing debt settlement. Here, we’ll look at some of the key advantages of choosing credit counseling over debt settlement.
Payments
Debt Settlement: When a payment is made to a debt-settlement company, the money is set aside into a separate account to accumulate until enough funds are available to make a settlement offer to one creditor. This money remains untouched in that account for months, if not years, while negotiations are attempted with creditors. During this time payment to creditors is completely stopped, but interest and fees continue to accrue. Delinquency builds.
Credit Counseling: Consumers that opt for credit counseling instead of debt settlement make one payment to a credit counseling agency per month. Rather than setting the money aside, those funds are equally distributed to creditors. Credit counselors work with creditors to create repayment plans with lower interest rates and smaller payments.
Collection Calls
Debt Settlement: Since payment to creditors is halted, people on a debt settlement program are faced with constant collection calls while the negotiations occur. Since these negotiations can take years, collection activity can be extremely overwhelming and become increasingly more aggressive.
Credit Counseling: Credit counseling agencies start making regular payments to creditors. Since regular payments are being made, collection calls and other collection activity is greatly reduced and usually ceases within 30 days.
Legal Jeopardy
Debt Settlement: Debt settlers typically negotiate the small debts first, leaving large debts to mount and leaving the consumer in danger of legal action.
Credit counselors, on the other hand, divide the payments equitably among the creditors according to a mutually acceptable payment plan. Consistent payment prevents further delinquency and avoids legal action.
Credit Report
Debt Settlement: Your credit report is severely damaged because you are not paying your debts. Most debts reach a “charge-off” status before they are settled. When you do finally pay your debt, it appears as “debt settled for less than owed.” High risk borrowers are subject to higher rates and less favorable terms on future credit. This information remains on your credit file for 7 years from the date of last activity (settlement date) and can have far reaching consequences.
Credit Counseling: As credit counselors make regular payments to creditors, your balances reduce and you build a consistent payment record. This results in your credit standing going up. This takes time, but in the long run having a good credit rating is extremely beneficial.
Keeping you out of debt
Debt Settlement: For the less than 10% of consumers that attempt and successfully complete a debt settlement program, the debt settlement company is unlikely to offer any sort of financial education into how to avoid this debt in the future.
Credit counselors and consumers together examine the causes and factors that contributed to the debt situation and learn to manage financial decisions in the future in ways that will lead to financial stability. When the debt is finally paid in full, consumers indicate that the education provided along with the counseling will allow them to better manage their financial futures.
Call Credit Advisors at (866) 966 – 7662 and we will give you honest advice and guidance to start your personalized action plan. Our consultation is free and there are no obligations when you call.
