The Difference Between A Credit analysis Service And A Debt Settlement Program

Some people think that credit counseling has similarities to debt settlement because both options have the end result of dumping debt. However, credit counseling and a debt settlement program is completely different when it comes to the method of shedding debts. With credit analysis and debt management, the company provides counseling services and debt management options for the person in debt.

On the other hand, debt settlement works by settling debt for a lower amount than the first balance. For instance, you owe $7500 to a Mastercard company. The company can settle for $5000 if you pay the amount completely. This way you pay less than what you owe.

The process of a debt settlement program is easy. You go to a debt settlement company to request debt help. And instead of paying your original creditors, you make regular payments to the debt settlement company. The debt settlement company then holds your money in a settlement fund. When your settlement fund accumulates into a serious amount of money, the debt settlement company will then contact your original creditors to agree for a settlement.

Debt settlement seems to be a very good deal. But don’t stop there yet. You’ve got to consider several factors before going for a debt settlement program.

First, you have got to be aware that debt settlement can hurt your credit standing. Majority of creditors don’t accept staggered payments for one big balance and most consumers don’t have to money to pay the debt in full . Since purchasers can not afford to pay their creditors as well as wait for a settlement fund to acquire, they generally tend to stop paying their lenders without delay.

This action will lead to the account being overdue and therefore reflects negatively on one’s credit score. Remember that payment history makes up 35% of your credit report. Except for this, you will continue to receive collection calls and letters because creditors continue with their collection practices while you wait for your settlement fund to extend. Worse, you may even find yourself facing a suit if the company gets desperate waiting for your payments.

In case your debt settlement pushes through, you can expect to be taxed on the balance forgiven by your lenders. So see a tax counsel before going for debt settlement. Nevertheless, debt settlement can be appropriate in select eventualities such as when the account is delinquent and when the credit score already reflects this. As much as humanly possible though, it’s best to search for other options if the credit history of someone can still be saved.

With a debt management program, the counseling company works side-by-side with the creditors to relieve debt by reducing interests and stopping overlimit fees. They also work towards extending the repayment terms. In a debt management program, you may also make monthly payments to the counseling company. The only difference is that your payments will be distributed to your lender within one week.

These are the major differences between a debt settlement program and a credit counseling service. If you are heavily indebted, ask your monetary advisor for the proper plan of action to take.