Credit Counseling or Debit Relief: Which Is Best?

If you're faced with an overwhelming amount of credit card debt that you can't handle yourself, you have two main options that can help you to avoid bankruptcy. Credit counseling and debt relief share the goal of getting you out of debt, but go about achieving this goal in completely different ways. The difference between those two ways has a great deal of impact on your credit, both short-term and long-term.

Credit Counseling

When you go for credit counseling, it's a sign that you're unable to keep up with your current debt load. However, it's something that credit card companies look favorably upon. Since many credit counseling companies are owned by credit card companies, they are happy to help by reducing your interest rates and eliminating late fees. The idea is that you'll be able to pay your way out of debt in 3 to 5 years through a debt management program; however, as a condition of the program, you likely won't be able to use your existing credit or apply for any new credit until your balances are paid off.

Debt Relief

Similar to credit counseling, debt relief involves negotiating favorable terms with creditors. However, the process isn't as straightforward. In debt relief, your goal is to settle your debts for less than what you currently owe. The debt relief agency acts on your behalf to negotiate and therefore requires a fee for its services. Settling your credit card debt usually means intentionally not making payments to save for a settlement; this also gives you the leverage necessary to negotiate a settlement for less than you owe.

Short-Term Implications

In the short term, debt relief may seem like a better option than credit counseling. You may be able to reduce your overall debt and get it paid off more quickly. However, this option also includes the constant harassment from creditors as you miss your payments, which can go far beyond calls to include lawsuits and wage garnishment. On the other hand, credit counseling takes longer, but will relieve you of the stress of dodging creditors.

Long-Term Implications

Though debt relief will have you settled sooner than credit counseling, the long-term effects of debt relief can be devastating. The process of missing payments and settling for less than your full balance can destroy your credit for years to come. Credit counseling also impacts your credit, mainly because all of the accounts you place on the debt management program will be closed, but you'll also build up a history of timely payments and gradually lower your credit card balances, which will drive your score up over time.