The Difference between Credit Counselling and Debt Settlement

The main difference between credit counselling and debt settlement is that while debt settlement involves settling a debt with a creditor by making a one-time settlement payments that is lower than what you agreed upon, a credit counselling service will negotiate lower and more favourable terms of the payment with your creditors and allow you to keep paying your debts on a monthly basis.
Another major differences that a debt settlement will report your accounts to the credit bureau as settled.  When an account has settles status in a credit report it is almost never viewed favourably by future lenders and has a negative impact on your credit score as well.
Being a participant in credit counselling is NOT necessarily considered as a negative thing by many creditors and the credit scoring model.  Several major financial institutions and banks consider being a part of a credit counselling plan as a positive sign of the consumer trying to get a control on his debt.  Many credit scoring model is including the FICO score claim that being a part of credit counselling has absolutely no bearing on the credit score a calculation.

A credit counselling agency provides credit education to the consumer along with providing other services such as helping you with your debt repayment.
Several credit counselling services help you with your debt repayment by enrolling you into debt management plans which generally involves negotiating a lower rate of interest with the creditors along with waverer of late fees and financial charges.  A debt management plan entered into by a credit counselling service does not settle the debt but allows you to keep making payments to the creditors after they have been brought down through negotiation.  Under a debt management plan credit counselling service will require the consumer to make a single lump sum payment to them every month which is less than the sum of original instalments amount that was due before the negotiation.  It will then disburse this amounts to your various lenders.  A credit counselling service endeavours to get you out of debt within two to five years using a debt management plan.  Apart from providing debt management services are credit counselling service also provides budgeting and financial planning which may not only be essential to the consumer but maybe all that the help that he requires.  Many credit counselling services work on non-profit basis where they provide you the basic services for free or for a very low fee.  They may also require you to participate in credit counselling and education programmes before or after as a requirement for entering into a debt management plan.  The goal of a legitimate credit counselling company is not only to address your current problems but to ensure that you remain debt free and financially secure in the future by arming you with strong credit education.

A debt settlement company will try and sell clear debt with your creditors by making a one lump sum payment that is less than what you actually owe them.  They might otherwise you to stop making the payments to the creditors for a period as long as 180 days in order be in a more leveraging position to negotiate the repayment.  The theory is that once an account goes delinquent and the consumer refuses to pay the lender will be more desperate to get whatever money they can recover.  The result is that all your accounts are either reported late or delinquent to the credit bureau.  This has a serious negative impact on your credit score and may haunt you for a long time in the future when the negative information prevents you from qualifying for credit.  Most of the lenders view a settled account as very negative as it shows that you did not pay the lender has agreed.  A settled account brings your credit worthiness under a lot of scrutiny and makes you a potential high risk for future loans.