Financial Planning for Generation X & Y Women
Notice: Because of a database server upgrade, this site may be partially non-functional from August 21st to August 22nd. No data will be lost. We apologize for any inconvenience.
Under slight reconstruction until 5PM CST today... Please excuse the dust!
Resource Center
Expert Q&A Archive Teleconference Call Archive Online Resources Federal Reserve Board Resources FPA Perspectives
Error — no()

Expert Q&A Archive

What is the difference between a debt settlement company and a consumer credit counseling agency?
Every once in a while Ill run into someone who tells me that theyve been approached by a debt settlement company. What is the difference between a debt settlement company and a consumer credit counseling agency? In some cases people have been advised by debt settlement companies to not call their creditors, which to me seems like a very bad idea.
Jane Callahan:
expert info »
I believe it's always a very good idea to stay in contact with your creditors. It's when they have no communication with you that they know not what is happening and begin the foreclosure process or call the collection agency. Many creditors are willing to work with you if you're honest and willing to work with them. I am not sure, but I would assume a debt settlement company makes money only when you let them talk to your creditors.
Gerri Detweiler:
expert info »
Great question! Debt settlement is promoted aggressively right now, and it is very risky if you are not getting good advice. Debt settlement is completely different than credit counseling. It is not officially sanctioned by creditors. It is best considered as an alternative to Chapter 13 bankruptcy (or sometimes Chapter 7 if you cannot or will not file for some reason).

I always recommend consumers try credit counseling first, but if they cannot make the payments required in counseling, then they should talk with an attorney and/or look into settlement. Again, be extremely careful. New companies are popping up all the time to take advantage of consumers in crisis. I have written an article on debt settlement and questions to ask a settlement company, which you will find at
Rebecca Schreiber CFP:
expert info »
I would be very skeptical of any company that approaches you, like a debt settlement company, and says, "don't solve your problem yourself - we'll solve it for you." The best thing you can do when you are in debt and need to work out a solution is to go directly to the people you owe and work something out.

The debt settlement company may just be looking to sell you a new loan with fees and closing costs while a credit counseling agency tends to be non-profit and more regulated. Another rule of thumb is not to do business with anyone who has come to you - it means that they have targeted you. If you come across a company that sounds like they can help you, contact them and have them mail you more information through the mail, giving yourself time to go over the information and ask questions. A legitimate company will give you the time you need to make
a well-thought-out decision.
Michael A. Masiello:
expert info »
I tend to avoid the settlement companies. They inevitably repackage debt and can cost you more. The credit counseling route is usually better, but beware. Use common sense to filter out the sales pitch, etc.
Sharon P. Hardy, CFE:
expert info »
Consumer credit counseling agencies are just what their name implies:
they provide counseling services to consumers who are over their head in debt and aid them in trying to get their debt consolidated into something that is more manageable to handle and pay off. They offer prudent and expert advice on a planned strategy to get their debt under control, such as trying to get their debt consolidated, with an opportunity to pay their debt off in a more expeditious manner at a lower interest rate than they're currently paying.