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© 2009 National Financial Awareness Network, Inc.http://www.nfan.com/ 
Credit Counseling Costs ConsumersMore Than Debt Settlement
How can debt settlement cost less whendebt settlement companies charge fees? Read this article to find out! 
 
Media personalities often praise credit counseling agencies for their non-profit status whilecriticizing debt settlement companies for charging fees for their professional services. Whatmany consumers do not realize is that consumer credit counseling agencies collect the same (andoften more) fees from their clients than debt settlement companies. The difference between thetwo is that one collects those fees directly from consumers while the other collects them ascommissions from the creditors. However, the fees come from consumers' pockets regardless.
Consumer Credit Counseling Fees
 Consumer credit counseling services assist indebted consumers by helping them develop a budget andrepayment plan. The repayment plan requires consumers to send in one payment each month, which theservice distributes to the multiple creditors in each debt management plan. The service will often securelower interest rates on their client's credit card accounts to help ease repayment.Some consumer credit counselors may take a setup fee or a monthly donation directly from consumers.However, the bulk of their funding comes from creditors through what is known as "fair share" donations.These "fair share" donations come out of the monthly payments the service collects from consumers andusually amount to about 15 percent (sometimes less) of what the service collects. So, if a consumer issending in $1000 per month to the service, the service may collect $150 per month in commission-likedonations from creditors on the backend. Essentially, the consumer is paying for the service; it's justarranged in a way to help maintain non-profit status so the service and the creditors benefit from the taxbreaks associated with this non-profit status.
Debt Settlement Fees
 Debt settlement services assist indebted consumers by helping them develop a budget and a savings planthat involves consumers depositing funds into a third-party savings account each month. These funds areleft alone to accumulate until there is enough to negotiate a settlement with a creditor. Because consumerswho are eligible for debt settlement are experiencing a financial hardship and are already behind or about tofall behind on their credit card bills , they use what little money they have available to save up forsettlements. Once enough funds are available and a creditor agrees to partially cancel a debt (for example,a creditor accepts $5,000 to fully settle a $10,000 balance), the consumer starts saving up for the nextsettlement until all eligible debts are settled.Debt settlement companies are somewhat less standardized, partly because the industry is newer than thecredit counseling industry and partly because creditors do not have the control over debt settlement thatthey enjoy over credit counseling. However, growth in the industry and industry trade groups are helpingstandardize much of the industry. Regardless, it's not uncommon for debt settlement companies to charge a
© 2009 National Financial Awareness Network, Inc.http://www.nfan.com/ 
 
setup fee and a monthly service fee. Many companies typically charge around 15 percent of the enrolleddebt amount, which they break up into monthly installments over the life of the program. If 15 percentsounds familiar, it's because that's how much of each payment credit counseling services often receive ascommission-like "fair share" donations from creditors.
So, what's the difference?
 Consumer credit counseling services help consumer repay 100 percent of the debt owed plus interest,although at a reduced percentage. The service typically earns 15 percent (sometimes less) of what they areable to collect for creditors. So, if a service is able to collect $10,000 from a client, the creditor may rewardthem with a $1,500 donation. The client pays the full $10,000.Debt settlement services help consumers negotiate reductions in the amount owed in exchange for lump-sum settlements. Debt settlement services are more upfront about the fact that they earn fees for theservices they provide and, instead of filtering these fees through creditors on the backend, debt settlementservices collects fees openly from consumers. However, if a client settles a $10,000 debt for $5,000, the$1,500 in fees paid to the debt settlement company just saved them $3,500 over what they would have paidthrough credit counseling services. Not bad, even for this simplified example.As far as consumers go, a consumer who cannot afford to repay all unsecured debts but who is also lookingto avoid bankruptcy is often better served by a debt settlement service. Unfortunately, this is the situationfor a growing number of consumers as unemployment and foreclosures hit record levels. Debt settlementfills the gap between credit counseling services that require full debt repayment and bankruptcy, which maycancel all debt.
How to choose?
 Do the math. If you can afford to fully repay your debts and you just need a little help organizingrepayments and lowering ultra-high interest rates, then you may want to look into consumer creditcounseling services. However, be sure to only approach those agencies approved by the U.S. TrusteeProgram athttp://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm. If you are terribly worried aboutyour credit score, then this route may be best for you.If you do the math and discover that full repayment isn't feasible, but you believe you can partially repayyour debts, then you may want to look into debt settlement services. However, be sure to pursue companiesthat belong to industry groups, such as the U.S. Organization for Bankruptcy Alternatives (USOBA) or TheAssociation of Settlement Companies (TASC) because membership in these groups demonstrates a
© 2009 National Financial Awareness Network, Inc.http://www.nfan.com/ 
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