Consumer Credit Counseling Vs. Debt Relief

An individual who finds himself mired in debt may choose between two popular solutions to help solve his problem: consumer credit counseling and debt relief. Consumer credit counseling involves speaking with a financial professional who will offer advice about getting out of debt. Debt relief involves settling with creditors for an amount less than was originally owed. Both actions have advantages and disadvantages.

Counseling Advantages

The main advantage of counseling is that is can be low cost or, in some cases, absolutely free. Many nonprofit companies are designed to help individuals solve their debt problems without taking on more debt by paying a financial professional. At best, a good counseling program can help an individual develop an effective plan to get out of debt without much financial pain.

Counseling Disadvantages

Some counseling programs are better than others. In fact, some counseling programs are sponsored in part by credit card companies, the same people to whom many clients are in debt. So, these agencies may not necessarily be acting in the debtor's best interest. In addition, some of these programs are not free or particularly effective. If a person goes to a bad program, he may end up paying significant fees to receive cookie-cutter financial advice.

Debt Relief Advantages

The main advantage of debt relief is that, if the person negotiates well, she will owe significantly less money to her creditors than she originally did. Many creditors are willing to take partial payment on a debt instead of full payment. Therefore, debtors may be able to convince them to settle for less than the amount they were originally asking for. Unless debt relief is done with a financial adviser, this settlement is free to attempt, too.

Debt Relief Disadvantages

The downside to debt relief is that it will, in most cases, seriously harm a person's credit rating. Anytime a person settles with a creditor to pay less than he originally agreed to pay -- even if the creditor agrees to the settlement -- he will take a severe hit to his credit rating. This is because credit reporting agencies take debt settlements as a sign that the person is less likely to pay back future loans on time and in full.