Consolidation vs. Debt Management vs. Credit Counselling 

Before we discuss the specifics of credit counselling, we should discuss the specific differences between the three most common forms of third-party debt management.  

There are several different types of consumer credit services that all claim to be the solution to your debt related problems. There are debt consolidation companies, debt management services and credit counselling, to name the most widely used. While they have a number of things in common, there are some significant differences as well. Let's take a look at how they compare to one another. 

Debt Consolidation: The first type of consumer debt service is debt consolidation. These companies will help you pay off your debts by consolidating several of them into a single loan. This loan generally has a much lower interest rate, particularly compared to credit cards and other types of consumer debt. It may also have a lower monthly payment, which can be a benefit if you are struggling to meet your existing payments. 

These consolidation loans are generally secured by some sort of collateral, such as your home or other assets. This can be a disadvantage in some cases. Because they are secured loans, if you are unable to make the payments for some unexpected reason, your home or other assets could be at risk since they are collateral for the loan. 

In most cases, credit cards and other higher-interest debts are unsecured, so they would not be able to put a claim against your assets in the same way. This is the biggest downside to converting unsecured debt to secured debt. You’ll also have an extremely hard time getting approved for loan or debt consolidation if you don’t have substantial collateral.  

Debt management services generally work with you to create a more manageable financial plan, including budgeting and analysing your spending habits. They will also negotiate with your creditors on your behalf, to arrange lower interest rates, have service fees and other charges waived and possibly even lower the balance owed (uncommon but it happens). 

Working with these debt management companies can negatively affect your credit rating, so it's still something you need to think carefully about. But because they are not re-financing your debt so much as re-negotiating what already exists, there is less risk for your home and other assets. 

Credit counselling has many similarities to debt management programs, but its main focus is to help you get your own finances under control. This not only includes getting control of your debt and the monthly payments, but also improving your overall financial habits so you become more effective at managing your money. This will help you avoid getting back into debt once you have it paid off. We will be discussing debt management and credit counselling interchangeably because most companies that offer one of those services will also offer the other and many will even use those terms interchangeably. The most strikingly different method is consolidation which, as you read, is a bit riskier than counselling and debt management.