All formS of debt relief have been known to lower a consumer's credit score.  But consumers have mistakenly blamed debt settlement to drastically lower their rating.  They did so because of the way debt settlement programs work.  Consumers save up money throughout the duration of the program and arbitrators from the debt settlement companies negotiate with creditors once there is enough money to settle for a maximum of 55% of the total debt.  With this method the company eliminates each debt one by one until all of the debts are settled.

The reason a debt settlement program is much more effective than debt consolidation and credit counseling and should not even be compared to bankruptcy is because comparatively its effect on a consumer's overall credit worthiness is actually very beneficial when the following factors are considered:

    * The program length
    * The total amount of money paid
    * Its residue on the credit report after the program has been completed.

To cover the first point, the average length of debt settlement programs is about 30 months (two and a half years).  The average time debt consolidation and credit counseling programs last is five years.  This means that after two and half years consumers have another two and a half years to rebuild their credit scores while a stress-free and debt-free life.

Regarding a financial outlook, with debt settlement consumers pay an average of 55% of their debts.  With debt consolidation and credit counseling, consumers pay 100% of their debt plus an average of a 5-10% interest rate for five years.  So, overall they pay in the range of 125-145% of their debt.

Lastly, debt settlement does cause consumers to go delinquent on their debts for the reason of obtaining a low settlement from their creditors, which in turn causes a decrease in the credit score.  After they settle, the creditor will report the debt as "settled" or "paid as agreed".  In a debt consolidation and credit counseling program the credit bureaus report that consumers are "currently enrolled in a debt management company" throughout the duration of the program and keep reporting this for another seven years.  This raises a major red flag for any creditors that you will apply for lines of credit with in the future – including applications for mortgages, auto loans, credit cards, and personal loans.

Regardless of the type of debt relief option you choose to enroll in, always make sure the company is legitimate and has a strong track record.  One of the best ways to verify its credibility is by visiting the Better Business Bureau to view their rating of the company and to see the company's history.



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