While these two services are often confused as interchangeable, they are in fact, very different. Credit Counseling companies are typically non-profit organizations that have pre-arranged agreements with credit card companies to lower the interest rates on existing debt down to a creditor issued “concession rate”; although the monthly payments required from consumers are lowered, the principal amount owed is not reduced. These interest reduction arrangements allow consumers to lower monthly minimum payments from around 4%, to as low as 2%-3% of debt balances, and are accompanied by a payment plan that, if the consumer is able to stay on it, will satisfy the existing debt in approximately five years. Credit Counseling companies receive money from the consumer each month, and then, using an automated electronic payment process, distribute the money pro-rata to the various creditors each and every month. Credit Counseling organizations collect a fee from consumers each month, and in addition, a revenue share called the "Fair Share" from the credit card companies. The Credit Counseling industry helps a segment of consumers who are just slightly below the minimum payment hurdle for monthly minimum payments, and it was a solution created by the credit card companies themselves in the 1960s to help improve recovery rates on delinquent credit card accounts.

Debt Settlement is a more aggressive approach for consumers than Credit Counseling. There are no pre-arranged settlement terms with creditors, and the consumers do not make monthly payments to their creditors. Each debt is negotiated individually, which involves multiple phone calls, faxes, paperwork and negotiation over months, or even years, depending on the creditor and the consumer’s particular situation. Debt Settlement firms do not make payments to creditors on behalf of consumers. They negotiate balances down on the consumer’s behalf, receive confirmation that the settlement will be binding on the creditor and then they rely on the consumer to make the lump sum settlement payment directly to the creditor. The process of Debt Settlement is significantly more labor intensive than Credit Counseling (which is essentially a pre-arranged and automated bill payment service). A Debt Settlement company with 25,000 clients would require over 300 employees to support it, whereas a similar sized Credit Counseling organization would require approximately 40 employees. Furthermore, Debt Settlement firms are paid directly and solely from the consumer and collect no fees or Fair Share distributions from creditors.

The total cost (including provider fees) to a consumer of a Debt Settlement program is frequently approximately half of the cost of a Credit Counseling program and a successful program is typically 40% shorter than a Credit Counseling program.

Options for Consumers with $20,000 in Credit Card Debt:

1. Based on 15% - 18% total fee, and a typical program length of 3 years.
2. Assumes 6% interest amortized over a 30 year fixed mortgage.
3. Assumes credit card interest rate of 19.9% and minimum payment that is the higher of 3.0% of debt balance and $25.
4. Assumes credit card rates are reduced to 11.9%, and adds debt management program fee of $50 per month. Payment is fixed at $500 or 2.5% of starting debt.
5. Assumes average settlements of 50% and total fee of 15% of debt.
6. Assumes 60% of debt paid back, plus $2,000 filing fee.
7. Credit Counseling in Crisis: The Impact on Consumers of Funding Cuts, Higher Fees and Aggressive New Market Entrants, Consumer Federation of America and National Consumer Law Center, April 2003.
8. TASC survey of member companies, September 2009.
9. "Bankruptcy by the Numbers: Measuring Performance in Chapter 13" by Gordon Bermant and Ed Flynn, Executive Office for the U.S. Trustees.