Credit card debt this year is at an all-time high, and more and more cash-strapped consumers add to those numbers every month.
If you are in getting deeper and deeper in debt on your credit cards, you may be looking for a way to climb out.
Two popular solutions are credit counseling and debt settlement.
But it's important to know the difference.
As of mid-2024, Americans had one point $1 trillion in credit card debt, according to Lending Tree.
Some people in debt — like Nicole, who asked that her last name not be published — have been turning to debt settlement firms.
"They told me that you stop paying your bills, and that they would then work with my creditors," she said.
But after 6 months, she said back in May, her debt barely went down.
"Why wasn't my money managed better?" she asked.
Which service is better for you?
Thomas Nitzsche is with the nonprofit Money Management International, formerly known as Consumer Credit Counseling.
"If you stop paying on your credit cards, they start entering default status," he said.
Nitzche says debt settlement firms can work, by getting creditors to forgive part of your debt.
But he warns that settlement can harm your credit score and your ability to get loans for years.
"You contract with them to negotiate with your creditors for less than you owe," he explained. "The difficulty there is that in order to settle, most creditors will require you to be in default, and that obviously causes a lot of credit damage."
Nitzche suggests credit counseling instead, where a counselor helps you consolidate your bills at one low rate, that you pay off over four to five years.
That's what Taylor Gothard did, after running up tens of thousands of dollars in debt when both he and his wife lost their jobs during the pandemic.
"At the time we entered the program, we were at a principal balance of $104,000," he said.
But a credit counselor helped him slash the amount he owed, and he is now almost debt-free.
This is why many financial experts say you should start with a non-profit credit counseling service first, so you lower those debts and you don't waste your money.
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