For any one of us, a number of situations may make our debts become a problem.
When that happens though, it's important to know that you aren't necessarily stuck.
Bankruptcy isn't the only option.
Understanding that, knowing that you can turn to debt consolidation and credit counseling can relieve a large part of the burden when debt is a problem.
To take it further though, it's important to understand the differences between debt consolidation and credit counseling, and to be able to choose the solution that's right for you.
Debt Consolidation and Credit Counseling - What's the Difference? There are obvious differences between debt consolidation and credit counseling.
Consolidation entails taking out a loan, while credit counseling involves working with a debt counselor to negotiate down the amount of money you owe.
There are also less obvious, and often misunderstood, differences between the two.
Differences in length of time to complete - One of the biggest differences is the length of time to complete the program.
A consolidation loan usually averages 5 - 8 years before it's paid off.
On the other hand credit counseling, often referred to as debt settlement, is usually completed in 2 - 3 years.
Differences in the way your credit is affected - One of the most misunderstood differences between debt consolidation and credit counseling is the way in which your credit rating is affected.
People seem to think that because consolidation is a loan that it affects their credit in a positive way.
This isn't true at all.
A consolidation loan is a black mark on your credit rating.
Most lenders look at your current credit, see that you overextended yourself, and will refuse to extend further credit.
This black mark lasts for the length of time the consolidation loan is on your credit rating, and five years after.
Since a debt consolidation program can last as long as 8 years, that's 13 years that the loan may affect your ability to gain credit.
Since a debt settlement program is over faster, the negative effect to your credit rating doesn't last as long.
If you finish your debt settlement in 2 years, then at that point you can begin working to rebuild your credit and overcome any negative effects the counseling program may have had.
These differences are important to consider as you choose the debt relief program that is right for you.
Debt Consolidation and Credit Counseling - Which one's Right for Me? With a clear understanding of the differences between debt consolidation and credit counseling choosing a solution isn't really that difficult.
The only other thing you really need to consider is the amount of debt you have.
If your debts are still a manageable amount, and are under $10,000, then a consolidation loan may be the best solution.
The important thing here is that you are able to pay the loan off in a 2 - 3 year period.
This obviously becomes less likely as you begin dealing with larger amounts of debt (most of us couldn't pay off a $100,000 loan in 3 years).
For those with a larger amount of debt, a credit counseling program is likely the best solution.
By working with a counselor and having the balances of the debts themselves reduced - your debts become more manageable and you'll be able to complete the program in a shorter amount of time.
If you're currently suffering because of huge debts, you may want to check out our debt relief review page.
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