If you're like many Americans, you could be just a few paychecks away from a serious financial crisis. Between mortgage or rent payments, insurance, utilities and credit card bills, you face a dizzying round of bills at the end of each month. If your debts are increasingly hard to pay off, or you're only managing to keep up with the interest, credit counseling may be the ticket for you.

TUTORIAL: How To Manage Credit And Debt

How can a credit counselor ease your financial pain? More than a million Americans each year call on counselors to help out when credit woes threaten to capsize their financial security. While credit counselors can't renegotiate the overall amount of your debt, they can negotiate with the various lenders to lower your interest rates, often by as much as 50%. A trained and certified counselor can also help you to:

  • Create a personalized budget and a debt management plan;
  • Eliminate late payment penalties and other fees;
  • Distribute payments to each of your creditors.

All of this can put you back on the road to financial stability. If a credit counselor sounds like just the thing to get you out of debtors' purgatory, read on as we show you what to look for in a guide.

Don't Let Them Come to You

When you launch your search, the key is to be realistic and sensible. Don't be pulled in by a big, flashy advertisement - and beware of telephone calls or emails that arrive out of the blue from credit counselors offering their services. Reputable credit counselors usually rely on past clients for referrals. They don't need to solicit your business through television, telemarketing or "spam" emails. Look for an agency whose counselors are certified by an outside organization and aren't paid on commission.

Interview several agencies before making a choice, and don't be afraid to ask around for recommendations. To get started, you can do an online search for "independent consumer credit agencies". Another good place to start is the National Foundation for Credit Counseling. (For related reading, see Are You Living Too Close To The Edge?)

Are you a priority?

Financial solutions are rarely one-size-fits all, so find out if the counselor will devise a plan tailored to your personal circumstances. Ask for a clear presentation - in writing - of the fees you will be charged and what they are based on. As a general rule, you shouldn't pay more than $100 in set-up fees or $50 in monthly fees. Monthly fees vary according to state law, which the agency should be able to explain. When you add up these fees, ask yourself if an agency stills make sense for you, or does it merely add more to existing debts?

Develop a Debt Management Plan

Once you've chosen a qualified credit counseling agency, you will be asked to provide information about your income, expenses and debts. Your credit counselor will analyze this information, discuss your situation and make recommendations to help you address your financial problems.

The counselor should negotiate a debt repayment or debt management plan (DMP) that lets you repay your unsecured debts at reduced interest rates, and possibly knocking off some late fees or other penalties. In turn, you will be expected to make a regular monthly payment to the credit counseling agency. So, instead of writing several checks to various creditors, you make one payment each month to the counseling agency. These payments are then used to pay your creditors according to a schedule the counselor has developed in consultation with you.

Some Other Things to Consider:

  • Don't be pressured into a snap decision. Of course you want to act promptly to address your debt problems, but a reputable credit counselor will allow you time to evaluate the offer. Ask around and choose the solution that best suits your circumstances.
  • DMPs usually cover only your unsecured debts, meaning you'll still need to make payments on secured debts such as car loans or mortgage. Find out which debts will be included and excluded from your DMP.
  • A successful DMP can take between 30 and 60 months to finish. You'll often be required to not apply for any additional credit and not to incur any additional debt while you are participating in the repayment plan.
  • The agency should provide regular statements to you showing how your funds were distributed, and should be available to speak with you during regular business hours.
  • If you are truly destitute, ask if the agency will reduce, postpone or waive its fees due to your circumstance.
  • If you are hoping to renegotiate the total amount of your outstanding debt, you'll need to explore debt settlement.

In addition to a repayment plan, reputable credit counseling agencies will help you manage your finances in the long-term through counseling and education. Ask whether yours offers free workshops or educational materials. (To get started, see Six Months To A Better Budget and Get Your Budget In Fighting Shape.)

If you find yourself in debt and falling behind on important bills, credit counseling can be a financial lifesaver. If you do your homework and locate an accredited counseling agency, you'll get yourself back in the black in no time.

For more help, check out Digging Out Of Personal Debt.

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