Credit counseling involves working with the credit card companies to lower the interest being charged. With consumer credit counseling services a consumer can be debt free in 4 to 5 years and able to save some money on their high interest credit cards. Realize, however, that these companies are usually set up by the credit card companies in order to collect as much of the debt as possible. Don't be fooled by their non-profit status... all the profit they make beyond their operating expenses goes back to the credit card company. Also, when working with one of these companies, any debt that they help you with will show as TPA (third party assistance) on your credit report. In some instances, the strategies can be just as bad for your credit score and rating as a bankruptcy!
A Debt Consolidation program involves taking out one loan to pay off multiple debts. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of simply making one payment instead of many, although usually for a much longer period of time. A consolidation program can severely affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed very carefully. Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is considered a last resort for debt relief by most because of the usually severe credit implications. For consumers who owe a lot of money on their credit cards and do not have an adequate income stream, this may seem like the only debt relief alternative. In a Chapter 7 bankruptcy, a debtor will generally be forced to liquidate all non-exempt assets of value and pay the creditor with the money from the sale. Most consumers who file chapter 7 bankruptcy will advise you that the long term damage just isn’t worth it.
