Credit Counseling vs. Debt Consolidation

Learn the difference between credit counseling and debt consolidation from AmOne! Both credit counseling and debt consolidation are ways to help manage debt.
confused man with bills
By Adam Beckles
Updated on: November 7th, 2022

confused man with bills When exploring credit repair options you’re likely to come across debt consolidation and credit counseling. Both of these options could be a valid solution to your financial problems, but choosing between credit counseling and debt consolidation can lead to some confusion.

Many people are choosing these programs as an alternative to bankruptcy, and knowing the difference between debt consolidation and credit repair can help you decide which path is best to take. The end goal is similar, but how each debt management program works is what makes them unique.

Credit Counseling

When you use this method to manage debt, you’re more likely to receive guidance from a credit specialist about your accounts, amounts owed, creditors and lenders you owe, and your current budget. Counselors will work with providing information on building a budget, lowering your debts, disputing any false claims on your credit report, and getting all your bills up to date.

Credit counseling does some of the work for you by as they may work with credit card companies to lower your interest rates. You will pay the credit counseling company and they will pay the creditors on your behalf. Credit counseling programs might also charge you a fee for their services; a note is also added to your credit report that you are undergoing credit counseling. When considering credit counseling agencies it is best to use on that is a member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation for Credit Counseling (NFCC).

Debt Consolidation

If you have multiple debts, mainly through credit cards you might consider a debt consolidation. This debt management process works to organize all your debts into one loan with a single monthly payment. Many loans for debt consolidation require collateral to secure the loan.

Although the loan helps to consolidate your payments it could negatively affect your ratio of debt to available credit which hurts your credit score. If you fail to make the payments you are putting your collateral at risk as well. With a debt consolidation loan you want to explore your options as some lenders may be able to provide a better interest rate than others. A debt consolidation should not be used in order to free up your credit cards for more expenses so once you use your loan you will still need to budget your money accordingly.

The Takeaway

Although they serve a similar purpose using debt consolidation and credit counseling work in different ways to help consumers manage debt. AmOne can help you learn the difference between debt consolidation and credit repair, and determine which option is best for your financial situation. Get connected with credit counseling services or a lender that provides debt consolidation loans. Contact AmOne today to get your credit counseling and debt consolidation questions answered today.