Types of Counseling

• Credit counseling is a diverse field, with many different types of help for each situation. Some counselors will take the time to go over your personal financial situation and create a realistic plan for paying off your bills over a certain time period. They will also work as a mediator between you and your creditors, negotiating payment amounts and possibly interest or fee reductions. Other types of counselors work more towards settling your debt by trying to negotiate reduced payoff amounts on your outstanding balances, often as low as pennies on the dollar.
  
  

When a Counselor Can Help

• A counselor may be best for you if most of your debt is unsecured credit card debt. Secured creditors have less reason to work with you because they can take the property that secures the debt, like your car, if you default. To work with a counselor, you must be willing to follow a strict budget to make your payments as agreed. You may also want to consider a credit counselor if you are determined to avoid bankruptcy. Sometimes, though, a bankruptcy is the best solution, and a good counselor can advise you if that is the case as well.
  
  

Effects on Credit

• The effects of credit counseling on an individual's credit rating varies. Much of the impact depends on how the individual creditors report it. If the creditor does not report anything, and your bills are current, there will be no impact to your credit. If you are settling bills for much less than you owe, the creditor is likely to report this fact, and it will impact the way that creditors see you. Even then, getting control of your financial situation now is likely to improve your complete situation long term.
  
  

Cautions

• Look for a credit counselor who has some accountability. Try to find one who is a member of the Association of Independent Consumer Credit Counseling Agencies. A good counselor should not charge high up-front fees before doing anything for you. If you are working with a counselor who collects all of your monthly payments and distributes them to your creditors, review your credit card statements carefully each month. Missed payments are a sign of potential trouble with your counselor. Just because a counselor is nonprofit, doesn't mean services are free, or even reputable. Check any counselor out carefully with your local Better Business Bureau.