Debt Management and Credit Counseling
Understanding the difference between debt management and credit counseling.
Identifying the right option for debt relief can be tricky. You may encounter a bunch of names for services that you’ve never heard of unless you’ve sought debt relief before. And often these terms may seem to refer to the same things or at least something similar.
Such is the case with debt management and credit counseling. This page is designed to help you understand how these two services relate and how they differ. That way you can make informed decisions about which way to go to find the solution you need. If you have questions or would like a free debt analysis from a certified credit counselor, call . You can also complete an online application to request help now.
What is the difference between debt management and credit counseling?
Debt management and credit counseling are not the same, but debt management can be part of the credit counseling process. It’s one potential solution to find debt relief. Credit counseling refers to the process of identifying the right solution for debt.
When you start the credit counseling process, a certified credit counselor evaluates your debt, budget and credit. Then they review all of your options for debt relief, including possible enrollment in a debt management program. Other solutions may include debt consolidation and even in some cases, debt settlement. Identifying settlement as the right option is almost always a last resort because of the damage it causes to your credit.
So in a sense, credit counseling is a conversation while a debt management program may be the conclusion you reach.
Why the confusion between debt management and credit counseling?
The reason these two terms are often confused is that a debt management program is administered by a credit counseling agency. If the program is your best option, you can enroll through the same agency that helped you identify the solution. The credit counseling team:
- acts on your behalf to negotiate with creditors
- receives and distributes your program payments each month
This may seem like a conflict of interest, but nonprofit credit counseling agencies are required by law not to “sell” one solution over another. They’re also not profiting off any enrollment. Monthly fees solely cover the cost of administering your program. In other words a credit counselor only recommends the program if it’s really your best option.
The ultimate purpose of credit counseling agencies
The reason credit counseling agencies administer debt management programs is that their ultimate purpose is to help consumers get out of debt. Debt management programs have much easier eligibility requirements than other debt relief options. DIY debt consolidation typically requires a good credit score, which may be difficult if you’ve missed any payments. In general, as long as you have income available to make a reduced monthly payment, you can enroll in a debt management program.
Credit counseling agencies are also effective at getting creditors to agree to a client’s enrollment in a program. They have proven records of helping people repay what they owe. As a result, credit counselors can succeed at negotiating with your creditors where you may have failed on your own. Creditors are more willing to accept an adjusted payment schedule, as well as reduce your applied interest rates.
In that sense, you can think of a credit counseling agency as your advocate for debt elimination. They help you overcome challenges and identify a path that allows you to reach freedom from debt. If it’s turns out you need help down that path by enrolling in a debt management program, then they stay with you on the way.