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Choosing between debt settlement and credit counseling

District of Columbia residents who are struggling with debt may wish to seek the help of a third party. Two options for those who need help are to work with a credit counselor or with a debt settlement company. A credit counseling company is generally a nonprofit organization that may have deals with certain creditors to help lower a debtor's payment. However, a credit counseling service generally will not work to lower the balance.

Credit counselors will also work with debtors to create debt management plans and provide personal budget planning. Unlike a debt settlement service, a credit counselor rarely advises clients to stop paying their bills. This could result in late fees and other penalties that could actually increase an individual's debt. While a debt settlement service may not have relationships with creditors, they may be able to lower a debtor's monthly payments.

As opposed to a nonprofit that generally does not charge a fee, a debt settlement organization is generally seeking to make a profit. It may be possible that a debt settlement provider works for or with a law firm. However, this does not mean that a nonprofit credit counselor or any credit counselor is not going to charge for services. Regardless of whether someone uses a debt settlement service or a credit counselor, debtors are highly discouraged from paying upfront fees.

Anyone who is struggling with consumer debt or any other type of debt may wish to seek the help of a bankruptcy attorney. In addition to obtaining an immediate halt to debt collection activities, filing for bankruptcy can result in a discharge of some unsecured indebtedness. There are various eligibility and other requirements associated with personal bankruptcy that an attorney can explain.

Source: Consumer Financial Protection Bureau, "What's the difference between a credit counselor and a debt settlement company?", January 02, 2015

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