When looking for a way to settle debts, undoubtedly you will come across these two options. Basically debt negotiation is when you negotiate the debt with your creditors. This can either be done by you personally or you can get help from the professionals. This plan is normally chosen by consumers who have trouble making their minimums each month. A new payment plan will then be worked out which might include the following:
· Low monthly installments over a longer period of time
· You will only need to a part of the debt (the other part gets forgiven)
· You will be given a lower interest rate
The aim by your creditors is so that they get their money back, if not all then some. Helping you would be in their best interest as if you were to file for bankruptcy; they would not get any money at all.
Credit counseling is not something you can do on your own, instead you have to work with a counseling service. Then, the counseling service will work with your creditors to come up with a way to settle your debt and most of the time, the solutions are almost the same as with debt negotiation. To know if you need credit counseling services see if any of the characteristics below fits you:
· You do not have debt negotiation skills
· You need help remembering how many bills you have to pay each month
· You wish that you only needed to pay one party who will then distribute payments to your creditors.
Like with everything else there are risks associated with both debt negotiation and credit counseling services which are listed as below:
Debt Negotiation risks:
1. Working with a lawyer can be very expensive
2. If you are try to negotiate debt on your own, you might not get the best deal as you are inexperienced
3. You have to negotiate with each creditor separately and this could be stressful
Credit Counseling risks:
1. Most companies charge an upfront fee before even starting
2. You can feel left out because you will not be included in the negotiations
3. Research is required on your part as many counseling services take money without providing much assistance.
But, the benefits are actually the same. You will be able to see a reduction in your debt, you will get a payment plan that will suite your budget and you can better manage your finances, reducing the risk of you filing for bankruptcy and putting a permanent blemish on your credit report.