What's the difference between a credit counselor and a debt settlement or debt relief company?
Debt consolidation is the process of combining multiple debts (whether credit card bills or other loan payments) into a single loan or monthly payment. If you have multiple credit card bills or loans, consolidation can be a way to simplify or reduce payments. However, a debt consolidation loan does not erase your debt and, in the end, you may end up paying more.
There are many companies that advertise for debt consolidation services, however many may actually be debt settlement companies. Debt settlement is risky for several reasons:
- Not paying creditors will show up as a negative transaction on your credit report. This could make it harder for you to take out other credit.
- If you don’t pay your debt, your creditors might hire debt collection agencies to collect your debt. This could lead to a lawsuit.
- This could result in a lawsuit.
- While you don’t pay your debts under a debt settlement plan, interest and penalty fees will be added to the amount you owe. So, even if your creditor (such as your credit card company) agrees to accept something less than the full amount you owe, that amount might have grown anyway because of interest and penalty fees.
Beware of debt settlement companies that charge up-front fees in return for promising to settle your debts. You can't be charged a fee before they actually settle or reduce your debt. You should also be cautious of debt settlement companies that instruct or advise you to stop making payments to your creditors.
Many companies that advertise consolidation services may actually be debt negotiation companies, which often charge upfront fees in exchange for promising to pay off your debts. They may also convince you to stop paying your debts and instead transfer money to a special account. Using these services can be risky.
People with limited English proficiency sometimes struggle to understand financial documents and contracts written originally in English. To increase accessibility of financial information and to help the people you serve better understand their options when they make money choices, the Consumer Financial Protection Bureau (CFPB) has enhanced its glossaries of translated financial words and terms.
We encourage you to use its new Arabic, Haitian Creole, and Russian glossaries, as well as the updated Chinese, Korean, Spanish, Tagalog and Vietnamese glossaries.
One of the challenges is that many of the technical terms commonly used in the U.S. financial system either do not have equivalent terms in non-English languages or have translations that are confusing. The goal of the glossaries is to ensure there’s consistency in translated consumer education materials.
The Consumer Financial Protection Bureau (CFPB) arms people with money management information and tools to know their rights, avoid pitfalls, and get help. You can find helpful handouts and resources to share in Arabic, Chinese, Haitian Creole, Korean, Russian, Spanish, Tagalog and Vietnamese.
For more information, consult the materials available from the Consumer Financial Protection Bureau (CFBP).
https://www.consumerfinance.gov/es