When it comes to debt relief, the ideal credit counseling client has the same underlying issue as the ideal debt settlement client: he or she is having problems with unsecured debt. Besides that, there is very little that they share in common. The purpose of this article is to identify the characteristics held by the ideal credit counseling candidate:

1. An ability to pay at, near, or more than the minimum payment– Unlike debt settlement, where a consumer’s monthly payment to the program may be relatively low compared to the credit card minimum payments, credit counseling can be somewhat demanding for consumers who are truly overextended with their bills. For consumers who are experiencing a financial hardship, debt settlement  may be the appropriate debt relief choice. Credit counseling, on the other hand, is usually an appropriate debt relief option for consumers who have adequate income and a debt load that simply needs to be better managed.

2. Does not own a home or lacks the equity to get a second mortgage – Despite what you may hear from a credit counselor, enrolling in a debt management plan will have a negative effect on your credit profile, unless of course your credit is already suffering. This being the case, why would a consumer intentionally choose to impair their credit when a more cost-effective, more credit-friendly alternative exists? That alternative of course is taking out a home equity loan. With credit counseling, the goal is to consolidate your debt and lower your interest rates to the 7 to 9 percent range, which when considering the finance charges of credit cards, can be a substantial reduction. That being said, you can accomplish this with a second mortgage as well, and on top of that, you can deduct the interest paid on your income taxes, which only increases the savings. When does taking out a home equity loan not make sense?

a. When you lack the credit score that will help you obtain favorable interest rates – The end goal of a savvy consumer should be to save money, so paying high interest on a home equity loan rarely makes sense from a financial perspective, even with the tax advantages.
b. When you are not certain you can afford the payment – Since your home is at risk when you consolidate your debt with a second mortgage, if there is even a slight doubt as to whether the payment is affordable, you should find a debt relief program instead.
c. When your problem is one with overspending and you have consolidated credit cards in your home before – Since your credit is not negatively affected by a home equity loan, you will still be consistently solicited with credit card offers that may put you back in this situation again. In credit counseling and other debt relief programs like debt settlement, a consumer is prohibited from incurring further credit card debt, which causes many consumers to become more accustomed to living on a cash only basis, where they only purchase items they need and can afford.  This “training period” can prove to be beneficial for years to come as consumers learn to be self-disciplined about their finances.