The average American now lives ten percent beyond their means. Many people, regardless of age, race, or gender have trouble getting themselves out of debt. It’s very easy to get yourself into the vicious cycle of borrowing to pay off your loans, and then borrowing more to pay of those loans, and on and on and on. It’s a lot more difficult to get yourself out of this cycle.

Generally, consumers who are financially stretched have the tendency to choose the wrong debt consolidation program. This article may help you sort through the various types of debt management services to understand the different bill solutions.

Debt Repayment Plans

Unlike credit counseling service and debt consolidation loan, debt repayment plans do not remove or erase credit history. According to the legislation of the Fair Credit Reporting Act (FCRA), any accurate information pertaining to an account may remain on the credit report for up to seven years. Not to mention, creditors may continue to convey information about accounts handled via a debt repayment plan. Any payments with special concessions, missed or tardy payments, write-offs or other may be reported by creditors. They are even authorized to report accounts that employ any type of financial counseling.

Debt Consolidation Loans

Unlike credit counseling services and debt repayment plans, a debt consolidation loan will not tarnish a person’s credit. In fact, a person can take out a loan and repay all other bills. Generally, debt consolidation loans reduce the interest rate or stretch out the repayment period of the borrower's monthly payments. Then the indebted is left with one concise bill. However, the downside may be a high interest on the going price of your debt. Nevertheless, for the person planning on a making a large purchase or applying for a new job, managing your finances with a debt consolidation loan, can upgrade your credit rating.

The debt consolidation loan is ideal for the disciplined consumer. For the consumer prone to living beyond their means, a debt consolidation loan is not recommended because the person may be tempted to mount more debt.

Credit Counseling

Credit counseling is recommended for the non-disciplined consumer. Let’s say that you are unable to devise a viable budget and you do not have the discipline to follow it. Credit counseling is excellent way to keep the indebted keep track of a growing pile of bills. Not to mention, creditors are more apt to accept a reduced payment plan when the debtor enters a debt repayment plan.

Credit counselors charge the indebted in one of three ways. Certain credit counseling agencies charge nothing or a nominal fee for managing one’s debt. Through the contributions of creditors others credit counseling services are compensated for their services. Others charge a fixed monthly fee. For the consumer, the monthly charge can add up substantially.

Basically, the credit counseling services requires a monthly deposit with the credit counseling service agency. In turn, the deposits are used to make payment to creditors according to the devised schedule. Some agencies require that participants must agree to not use or accrue any additional credit or debt during the program.

Managing personal finances with a credit counseling service achieves results in about 48 months or more. Since debt consolidation involves a timely repayment schedule, shop and compare credit counselors with debt consolidation services to compare which will have the shortest term.

The underlying advantage of a debt repayment plan is its ability to alleviate great stress and improve your credit score. Alternatively, using a credit counseling service will not eradicate all debt. The drawback is that a consumer may forget their other debts that are not included in the plan. The debtor should remember to review their monthly statements to confirm that the payments are being made and received.

Finally, just because a credit reporting agency takes over the payment of the indebted bills, it remains the consumer’s responsibility to confirm that creditors have maintained their promise to eliminate or reduce both interest and/or finance charges.

Back to Articles