by Starla Ross

Created on: November 19, 2009   Last Updated: January 04, 2011

It seems you can hardly watch television these days without the interruption of commercials touting advertisements for consumer and debt counseling services.

You may be wondering what role a credit counseling agency serves. Credit and debt counseling agencies help consumers who find themselves in 'over their heads' with financial problems - usually debt. A proper credit counseling service will help the consumer by working with his/her creditors and setting up a debt re-payment plan.

Legitimate services charge the consumer's creditors a set fee (usually 10 percent) to collect and send the payment to the creditor. Creditors are usually willing to take these reduced payments because they know receiving a reduced payment is better than receiving no payment at all. Upstanding counseling services will not charge the consumer an up-front cost and will not hold the customer's payments for longer than necessary. A reputable credit counseling agency is usually a not-for-profit agency.

How do you know when you need to consult with a credit counseling agency? There are several situations that may prompt you to visit with a counseling professional.

YOU HAVE PAST DUE BILLS

If you are past due on most or all of your outstanding debts (especially credit cards or unsecured loans), and you're no longer able to pay your minimum payments, credit counseling may help. A counseling agency will contact your creditors and set up a payment plan - reduced minimum payments which are due at a designated time each month. In addition, the creditor may reduce the interest rate so your payment is more manageable. You may also see a reduction in calls from bill collectors.

In this situation, you pay the counseling agency one large payment each month, and the agency divides up the payment and pays your creditors for you. The agency will work with you to assure your payment is arriving in time to pay all your bills. Any past due bills still remain your responsibility, and the creditor can still report this to the credit bureaus and/or charge you a late fee for these late payments if not paid on time.

YOUR INCOME HAS BEEN CUT

If you have experienced a large drop in pay due to unemployment, relocation, or illness, your income may no longer be enough to pay all your bills. In this situation, again consumer credit counseling will be helpful. The agency will develop a payment plan to meet all your obligations and work with your creditors until your income increases again.

COUNSELING IS THE LAST EFFORT BEFORE

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