Which is Best: Credit Counseling or Debt Settlement?

If you have debt problems, you have an array of possible strategies you can try to get your finances back in order. Credit counseling and debt settlement are two options available to you, though neither is a guaranteed solution. Every debt situation is different, and you should always evaluate your finances carefully before choosing what strategy you use to get out from under your debt problems.

Credit Counseling

Credit counseling services come in a variety of types, many offering quality advice and planning to people with financial problems. While many credit counselors are part of nonprofit groups, it doesn't necessarily mean the credit counseling services they offer are free. Credit counseling can be an invaluable part of your debt strategy, and counselors can provide you with a lot of assistance, especially if you are not comfortable dealing with difficult financial problems.

Debt Settlement

When you try to settle your debts, you and your creditors negotiate new terms that let you more easily deal with the debts you've incurred. For example, you might be able to get a creditor to agree to take a reduced payment plan that lets you pay a debt off over a longer period of time, or one in which you make a single large payment to pay off a larger debt.

Settlement or Counseing

Debt settlement and credit counseling are not mutually exclusive. You can, for example, talk to a credit counselor and determine that trying to settle your debts is the best option for you. Alternately, a credit counselor may advise you that settling your debts is not a good option, and that a better plan would be to develop a strict budget that lets you pay off your debts without settling or even filing bankruptcy so you're protected from your creditors.

Impact

Debt settlement, though it often lets you pay off your debts for less than the amount you owe, negatively impacts your ability to get new credit in the future. Whenever you settle a debt, that information gets recorded on your credit report, and future creditors will see it as a sign that you are not a reliable creditor.