What Is the Difference Between Credit Counseling and Debt Management

Many people associate credit counseling wit being in a debt management plan. They can be two very different things. There are many credit counseling services that take the approach of ‘one solution fits all’, which is usually a debt management plan. But the better and legitimate services offer an array of credit management services as the needs of each consumer is different. There are instances where mere education and advice can solve a person’s problems rather than a full fledged debt repayment plan. Some other people may only need their finances to be organized and to have a budget plan prepared for them. Some other people may have a specific credit need pertaining to housing rental or purchase, bankruptcy etc.

Credit counseling covers a wide variety of services, all of which do not require you to enter in to a debt management plan.

Entering in to a debt management plan is a step that ones takes when prior steps of counseling fail to provide results or it is determined beforehand that it will not be a sufficient measure.

It is true that many people need help facing their credit situation. This is apparent by the millions of consumers that enroll for credit counseling every year. It is also true that many of these people only require credit advice and education. For many people credit counseling is a way to get a clear picture of their finances and have a budgeting plan prepared for them. Under such a scenario, the consume has a few sessions with a certified credit counselor who evaluates the financial situation of the consumer in debt. After careful analysis of the income and expense, the consume is provided with a plan that is aimed at reducing sundry and superficial expenses in order to increase the disposable income. He is presented with a model on how to go about living under a budget till his debts are paid off. Guidelines are provided as to how to manage this. Once this plan had been made for the consumer, he walks out of the offices of the credit counseling service and is fully responsible for implementing and following it.

A debt management plan is different. When it is realized that the consumer is unable to pay off his debt under the current circumstances, the credit counseling agency undertakes to renegotiate the terms of the loan with the creditor. They work with the creditor to reach lower rates of interest, extend the loan tenure etc. They also undertake to make the payments on behalf of the consumer. Once a settlement is reached, the consumer provided checks to the credit counseling agency every month for the amount that needs to be paid and they in turn disburse it to the creditors. Once you enter in to a debt management plan, you can redirect collection calls to the counseling service offices.

It should be noted that while some creditors may consider being in a debt management plan as a positive sign that you are trying to pay off the money that you owe, it is likely to affect your credit rating adversely. It is sign that you are facing a credit crisis. Further credit will usually not be available to you during the time that you are in the debt management plan. A debt management plan usually aims at getting you out of debt in 2-5 years.