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"Most people tend to overestimate what they might achieve in 1 year,
and drastically underestimate what they might achieve in 5 years."

Rich Schefren (from The Attention Age Doctrine)

More and more consumers today find themselves in the
uncomfortable situation of only being able to afford the
minimum payments on their credit cards.  Or, even worse, not
being able to afford even the minimum payments.  In today’s
world, it is often easy to get in over your head and find
yourself spending more than you make.  It seems that
everything is going up but wages, and it is all too easy to
fall behind.

Many of these desperate consumers find themselves
contemplating a bankruptcy filing, but bankruptcy can carry
a legacy you will have to live with for years.  A bankruptcy
filing will stay on your record for a minimum of seven
years, and you may find it difficult or impossible to obtain
necessary credit in the interim.

Fortunately, there are alternatives to filing bankruptcy,
even for consumers who owe thousands or even tens of
thousands of dollars to various banks, credit cards and
other creditors.  Many people ask whether it is best to go
with a debt reduction program or enroll in a credit
counseling program.  While there are some similarities
between these two types of programs, there are some
important differences to consider as well.  Let us consider
the five most important differences between debt reduction
and credit counseling.

1. Did you know that most credit counseling programs will
require that you close all of your credit accounts?  The few
exceptions to this requirement include accounts that are
required for business needs, accounts with very small
balances and accounts on which services, on the other hand,
do not require that all credit accounts be closed.  This can
make it much easier to keep a credit card for emergency and
convenience purposes.

2. Credit counseling services typically take longer to
complete than debt reduction services.  The average length
of time to liquidate debt through a credit counseling
service is 5 years.  Unlike credit counseling, debt
reduction programs can often allow consumers to retire their
debts in less than a year.

3. Cost savings in the form of reduced payments is another
important advantage of debt reduction programs.  While
credit counseling programs typically require that the entire
amount of the debt be repaid, debt reduction programs can be
negotiated to allow the consumer to repay only a portion of
what is owed.  Most creditors are willing to work with
consumers enrolled in debt reduction programs and that
includes accepting a lower repayment amount.  Settlement
amounts can range anywhere from 20% to 60% of the amount
owed, with the industry average being around 50%.

4. Your credit score is also affected in different ways by
credit counseling programs versus debt reduction programs.
Generally, credit-reporting agencies will re-age the
accounts of consumers enrolled in credit counseling services
after three payments have been made.  With a debt reduction
settlement, the status of the account does not change.
If the account is current, it will remain current.  If it is
past due, it will remain so.  It is also good to remember
that with a debt reduction agreement the creditor will
report that the account has been “settled in full” or
similar wording, at the conclusion of the debt reduction
program.

5. The final difference between debt reduction programs and
credit counseling is the bargaining power enjoyed by the
consumer.  Credit counseling programs rely on the submission
of a debt repayment proposal which the creditors are free to
accept or reject as they see fit.  With a debt reduction
program, however, all creditors are contacted immediately to
inform them of the hardship situation and the desire to
resolve it through a negotiated debt reduction agreement.

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