CREDIT COUNSELING

Credit counseling offers understanding and education to consumers on how to avoid incurring debts that cannot be repaid, it is actually more debt counseling than a process of credit education.

Credit counseling involves negotiating with creditors to establish a debt management plan, which may help the debtor repay his or her debt by working out a repayment plan with the creditor. Debt management plans usually offer reduced payments, fees and interest rates to the client.

One of the salient features of the debt management plans is the consolidation of multiple monthly payments into one single monthly payment, which is usually less than the sum of the individual payments paid by the customer. Additionally, interest rates are lowered and delinquent accounts are brought current.

Debt Consolidation process involves analysis of income, expense and debt of a costumer to work out a repayment plan. Often it imposes taking out one loan to pay off others. It can be from many unsecured loans to one unsecured loan, but often it includes a secured loan against collateral.

Debt consolidation works out the options that might be available to help a costumer to pay off debts be debt free, it offers a consumer that has high interest debt balances.

Agencies offering debt management programs offer help to consolidate consumer debts by making arrangements with creditors on lower payments, minimized interest rates and give up late fees and other penalties. After selecting an affordable payment plan, the customer has to pay the amount to the credit counseling agency, the agency distributes the amount to his or her creditors, usually as a single monthly payment.

Benefits of Debt consolidation: 

• Reduce the monthly payments
• Interest rates must have lowered
• Helps to avoid bankruptcy
• Convenient monthly payment methods
• No penalty for early repayment
• Pay down existing debt faster

Many Credits counseling agencies provide free consultation to their clients. A debt counseling program typically lasts three or four years and depends upon the customer's exact financial situation including the liability, income and expenses.

Debt Settlement is a quick and effective debt elimination solution - an alternative to bankruptcy and debt consolidation. Debt settlement helps the debtor to reduce the actual amount he or she owes creditors. Most creditors welcome this option over bankruptcy because, it ensures, they receive a large part of the money lent out.  

Debt settlement is the process of negotiating with creditors to reduce or eliminate interest rates and in some cases, reduce the principal amount.

How does it work?

Debt settlement programs are provided by third party debt resolution firms who set up payment plans, and then negotiate settlements on behalf of the consumer. Typically, debt settlement programs are able to lower monthly payment contributions by half of the typical minimum monthly payments, and get consumers debt free in a short period of time. The debtor will save up and set aside money to build up a settlement fund and then, the debtor or his/her debt negotiator will negotiate with the creditor for a reduced payoff amount, typically between 25% and 50% of the outstanding balance.

Benefits

• Stop creditor harassment
• Lessen stress from debt
• Reduces payments up to 60%
• Reduces interest & penalties
• Makes debt free within 2 to 3 years
• Improves credit rating
• Makes the payment mode more convenient
• Stops Bankruptcy 

Consumer Credit Counseling

Consumer credit counseling services (CCCS) are provided by the non-profitable agencies (run by means of government grants) to resolve debt problems of a consumer without bankruptcy. These agencies work as mediators and sometimes charge a nominal fee.

Benefits

• Reduce monthly payments and interest rates
• Creditors stop late fees and over-the-limit fees
• Bringing your credit report current
• Help to resolve all unsecured debts
• Monthly payment option suits consumer budget
• Offer community outreach programs

Student Loan Debt Consolidation

In a Federal student loan consolidation, existing loans are purchased and closed by a loan consolidation company or the Department of Education. Interest rates for the consolidation are based on that year's student loan rate. There are three types of student loans available and all which can be consolidated -

• Federal student loans made to students directly: no payments until after graduation, but amounts are quite limited
   
• Federal student loans made to parents: much higher limit, but payments start immediately
   
• Private student loans made to students or parents: higher limits and no payments until after graduation, although interest will start to accrue immediately.

Unlike private sector debt consolidation, student loan consolidation does not incur fees for the borrower and can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus.