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How Advice is Different from Relief When it Comes to Debt

How Advice is Different from Relief When it Comes to Debt

As of June 2009, U.S. consumer debt stood at a shocking $2.52 trillion, according to the Federal Reserve.

With so many people drowning in debt, it should come as no surprise that many consumers are looking for ways to ease their financial woes.

There are several methods utilized to assist individuals struggling with mounting debt. Most of these methods fall under one of two categories: debt advice or relief. While the target consumer for these two categories might look the same, the types of services provided by each category’s methods are very different.

What is Debt Advice

Advice often comes in the form of credit counseling. When working with a counseling service, a certified consumer credit counselor will review a consumer’s financial circumstances in detail. With this information, the counselor will advise the individual of ways in which he or she can become and stay debt-free.

The types of services offered by counseling include money and credit management education; confidential budget, credit counseling; bankruptcy counseling and education; mortgage delinquency counseling; and homebuyer education.

When reviewing a consumer’s finances, the counselor should take the time to really dig into the client’s budgetary troubles to find the root cause as well as offer solutions. Actions the credit counselor should employ include:

  • Obtaining and verifying the consumer’s personal information and all income amounts;
  • Reviewing the individual’s budget and discussing spending recommendations;
  • Determining if the individual’s income can cover his or her essential monthly expenses;
  • Reviewing the assets and liabilities;
  • Obtaining the client’s debt account statements;
  • Reviewing the individual’s options based on his or her individual financial circumstances; and
  • Creating an appropriate action plan.

Additionally, a credit counselor often works directly with creditors in order to negotiate better interest rates on existing debts as well as possible reductions in the balances.

If an individual’s circumstances are considered dire enough, the credit counselor might recommend a plan of attack, through which the credit counselor oversees monthly payments to the client’s multiple creditors while the consumer pays the credit counselor directly to cover these creditor payments.

What is Debt Relief

While the primary focus of credit counseling is on providing advice to clients, the various relief methods focus on significantly reducing the actual amount owed.

There are three primary types of relief: consolidation, negotiation and settlement, and bankruptcy.


The primary method used is a consolidation loan. There are three ways in which to consolidate debt with a consolidation loan: refinancing your home with a cash-out option, securing a home equity loan or obtaining a personal consolidation loan. With these options, the consumer is obtaining a new loan, often with a low interest rate, with which to pay off existing debts.

Negotiation and Settlement

Debt negotiation, also known as arbitration, and settlement is an aggressive approach with the goal to reduce a client’s overall unsecured debt. With this method, an arbitrator works on behalf of the customer to negotiate lower amounts with a client’s creditors, sometimes by as much as 50 percent. While a consumer will still need to make payments on the remaining amount owed following negotiation and settlement, the process will leave a negative mark on the individual’s credit report.


Bankruptcy is the process by which an individual’s debts are canceled through an order of the court. One of the benefits of filing for bankruptcy is creditors must stop any attempts to collect on any of the balances, at least temporarily. While bankruptcy can feel like a “fresh start” for someone underwater, this step should not be taken lightly – a bankruptcy will stay on your credit report for seven to 10 years. Additionally, some balances, such as student loans and back taxes, cannot be canceled through bankruptcy.

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