With credit counseling, you will be working an agency that will assist you with a wide variety of tasks, including debt negotiation, developing & maintaining a budget, developing financial management skills, and credit score improvement. Both credit counseling agencies and debt negotiation companies can help you avoid bankruptcy and manage your debt effectively.

Credit counseling agencies partner with major creditors to help you reduce interest, stop late payment fees, negotiation debt repayment, reduce monthly payments, and educate you on financial management. Your creditors work with consumer credit counselors because it is to their benefit to help you get out of debt. After making regular payments for a few months, your credit counseling agency can have your accounts re-aged and your credit file will show the new updates. This can help improve your credit history, and build decent credit ratings.

Credit counseling is probably a better choice for people who need help with financial management, budgeting, and assistance in eliminating their debt. Debt negotiation is probably a better choice for people who have good negotiation and communication skills. If you already know about budgeting and managing personal finances, then you may be better off working with your creditors directly (on your own) to reduce your debt. One of the benefits of credit counseling is that companies are often more inclined to work with another company, than to deal with an individual debtor. Both solutions have pros and cons, so you will need to consider your skills, time commitment, and needs before deciding between the two.

The next step is determining if qualify for debt settlement. To qualify for debt settlement, you will typically need to have at least $7,500 in unsecured debt. Be sure to ask each debt settlement company that you talk to about the minimum debt balance requirements. Some companies have higher minimums than others. Look for debt settlement companies that have good ratings with the Better Business Bureau, and avoid companies that charge large upfront fees. Also, look for debt settlement companies that have a strong history of negotiating with creditors. Ask for references and compare the services that each company offers.

If you decide to pursue debt settlement, make sure you are prepared for the potential negatives. Some of these include possible collection lawsuits from creditors, damaged credit, and increased creditor phone calls. If you can’t handle these possibilities, then another option is probably the best solution for you. Likewise, if you cannot pay off your debt with your current income (or increase your earned income), then bankruptcy may be a better solution for you.

If you’re considering bankruptcy, it’s important to determine whether it will resolve your credit problems. Depending on the amount and type of debt you have, a bankruptcy may not erase your responsibility to pay your bills. Bankruptcy is typically less expensive than debt settlement. However, the consequences of a bankruptcy are terrible for your credit score. Debt settlement doesn’t affect your credit score to the same extent as bankruptcy, though a credit score drop is probable. A bankruptcy can remain on your credit report for up to 10 years, but bad debt is only allowed to remain for 7 years.

Both debt settlement and bankruptcy can be good solutions to debt problems. Talk with your attorney to determine the best solution for your needs.

Bankruptcy attorneys are also more familiar with the law as it applies to debt settlement and negotiation. Most debt settlement companies are not extremely familiar with laws that govern debt, discharging debt, judgments, and collections. An attorney is usually more knowledgeable when it comes to legal guidelines and practical advice.

Another reason to hire an attorney is that they are usually better at negotiation compared to debt settlement companies. Most attorneys earn a living by persuading and negotiating. As a result, they have developed good communication, persuasion, and negotiation skills. These skills will be put to good use when settling your debt. Attorneys are also typically more respected (and feared) compared to debt settlement firms. Your creditors are more likely to comply with an attorney than with a generic debt settlement company.

Also, an attorney can usually negotiate a better deal with a creditor than you could get for yourself. Studies show that when a debtor calls a creditor to negotiate, the debtor ends up paying about 75 percent of the total balance owed. An attorney can usually get this number a lot lower, possibly in the 50 to 60 percent range of the total amount owed. Before using a debt settlement company, consider hiring an attorney instead. Talk to an experienced debt settlement attorney in your area to learn more.

Debt settlement companies charge hundreds of dollars for an initial administrative fee to setup your account. Plus, they charge a monthly service fee. Fees will vary depending on the amount of your debts and the settlement company you’re using. Debt settlement companies charge you a fee every month, but don’t make payments to your creditors each month. Instead, they put all the money in a trust account and negotiate your debts with your creditors. When there’s enough in your trust account to pay a creditor, your debt settlement company will pay your creditor in full. This can take many years, depending on the amount of debt you have with each creditor.

In the meantime, you can be sued by creditors..Such companies take your money every month, but don’t make monthly payments to your creditors! Instead, they put it in a trust account, negotiate your debts with your creditors, then make a lump-sum payment when there’s enough in your account to pay a creditor in full. Unfortunately, debt settlement companies don’t ask your creditors to stop all interest, over-limit fees, and late fees from being added to your account. This means that while debt negotiations are in process, your bills will continue to increase. So, if you’re sued and a judgment is issued, you’ll owe even more debt than you did previously!

There are a lot of untrustworthy debt settlement companies, so be careful who you sign up with. A lot of debt settlement companies claim to be non-profit – however, not all of them are. Before signing up for any debt settlement service, be sure to fully investigate the company. If you’re already working with a debt settlement company and you’re unhappy, most companies will let you cancel your account and get a refund of what you’ve paid them (minus their non refundable administrative fee and monthly service fees).

The first step in debt consolidation is to calculate everything you currently owe.   Make a list of all your debts, and determine what you’re paying on these accounts each month.  The next step is to shop for the best type of debt consolidation loan.  There are several types of debt consolidation loans to consider.  There are home equity lines, and lines of credit, cash out refinancing, and a personal debt consolidation loan.  Personal debt consolidation loans are a good choice if you don’t own a home, or you have no equity in your home.  The interest rates on personal debt consolidation loans are higher than home equity loans, but typically lower than credit card rates.

When you’re shopping for debt consolidation loans, don’t forget to consider all costs, including upfront fees and points, as well as interest rates.  Use the loan’s APR as a comparison tool to determine which loan offers you the best deal.  Lenders are required by law to publish the APR, which includes the interest rate, and all fees and points.

The third step in debt consolidation is to commit to a timeline for repayment.  Personal debt consolidation loans and home equity lines of credit have a fixed term, so you’ll know exactly how long the repayment period is.  After you’ve chosen a debt consolidation loan, and established a timeline for repayment, the hard part begins.  The most important step in debt consolidation is to control your spending.  After you have your debt under control, it’s important to be disciplined and stick to the repayment plan.  Otherwise, you’ll end up in even more debt.

Your debt consolidation company will determine the monthly payments and rate of interest after considering your financial situation.  You will only have one account to pay off, instead of many small debts.  This makes it easier to manage, track, and reduce your debts.  The benefits of debt consolidation loans include: a lower monthly bill (compared to the combined bills of previous loans), a lower interest rate than before, fewer fees, easier money management, and an improved credit score if the repayment plan is followed.

Reverse mortgages are another option to consider if you are trying to pay off outstanding debts.  A reverse mortgage is a home equity loan for homeowners, aged 62 and above, that enables you to convert a portion of your home equity into tax-free income without selling your home, taking a new monthly mortgage payment, or giving up your title. In a reverse mortgage, the stream of payments is “reversed.” Instead of making monthly payments to your lender, your lender makes monthly payments to you for the equity in your home.