Racking up consumer debt is not difficult to do, especially during tough economic times. You may have racked up debt without even noticing. A few charges here and there and bam! You’re hit with high interest rates that make it practically impossible to make a dent in that debt. Before you know it, you run late on a few credit car or installment loan payments and the negative marks start to accumulate on your credit report.

You may have special circumstances that forced you into debt – illness, divorce, the unexpected death of a loved one, or even unexpected home or vehicle repair expenses. The problem is that while credit card debt is piled up, interest only grows and grows. If you pay only the minimum amount required each month on any given credit card or loan, you are very unlikely to ever pay it off fully. You may start to feel so deep in the hole and discouraged about ever paying off your debt that you may consider going bankrupt. Before giving up, you should know that there are ways to work around your debt and get your good credit back despite those soaring interest rates.

In these tough economic times, paying even just the minimum due on each of your credit card accounts can prove to be quite difficult. If you are looking for ways to reduce household costs or increase monthly income, consider how getting rid of your debt will affect your finances. One way to start plowing through your debt and restoring your credit rating is to undergo credit counseling.

What is Credit Counseling?

When debtors are overwhelmed by their debt to the point of confusion, credit counseling can help to get back on track. Credit counseling consists of simply taking inventory of all the debt the debtor is in and formulating a feasible plan for paying the debt off. Part of the process involves negotiating with creditors to cancel late payment and other fees as well as possibly reducing interest rates.

How Does it Work?

Before working with a credit counseling service, verify that it is a reputable organization with good consumer reviews. Ask friends or family for recommendations or contact the Better Business Bureau for referrals. Be wary of any person or organization that promises to eliminate your debt without your having to ever repay it. Also be careful of anyone who asks for large sums of money upfront in order to help you work through your debt.

After you have selected a credit counseling service, you will meet with your designated credit counselor. The counselor will ask you several questions about your income, expenses and all debt. This may be done by filling out a form or application instead. Once the credit counselor has an overall picture of your debt, income and expenses they will determine what percentage of your income can reasonably be used to pay your creditors. The credit counselor will then act as an intermediary between the debtor and his or her creditors. The counselor will negotiate with the financial lending institutions and ask them to accept a monthly payment amount that the debtor can actually afford. Once they go through this process with all of the creditors and lenders, the credit counselors will formulate a repayment plan and they will also typically close out your accounts so that more debt can’t be added. Credit counseling organizations typically charge the debtor a monthly fee that they then distribute to the creditors according to the repayment plan. If a debtor stops paying the monthly fee and/or drops out of the program, the balances and interest rates tend to go back to what they were before enrolling in credit counseling.

Amy Nutt is a freelance writer who specializes in providing great financial information for Canadians. When searching online for debt counselling or credit counselling services, be sure to visit the resources available at Consolidated Credit – offering a variety of debt counselling services and financial planning tools to help Canadians get their debts under control.

Credit Counseling FAQ:

Question: How does going to a Credit Counseling service affect your credit rating?
My credit score is so low, I’m gonna need a backhoe to dig it up, but I don’t want to make it worse by going to a credit counseling service. Will I be able to buy a house while making payments to said service?

Answer: Credit counseling will appear on your credit report, but it’s not factored into your credit score. Lenders and creditors may be hesitant to issue new credit if the credit counseling is recent, but a bankruptcy or foreclosure will do far more damage.

Question: Can I still do consumer credit counseling if I am already 60 days late on my credit cards?
In other words, do you have to be current to start credit counseling? About how much would they reduce my monthly payments? I was paying about $400/mo.

Answer: Sure you can. It’s impossible to tell how much they could reduce the payment. Call and ask, there is no obligation.

Question: Has anyone used Credit Counseling to get advice on getting old accounts paid off and raising your credit score?
I am trying to get a few old accounts resolved for good. I am thinking of talking to a credit counseling service. Has anyone found them to help with advice.

Answer: I would speak with them. They may be able to answer questions about your accounts and tell you what would be the best way to pay the debts off. I suggest GreenPath. You can speak with someone over the phone for free.

Question: What Credit Counseling company is the best?
My debt is under control after a year-long struggle. Now I’m looking for a credit counseling service to help me improve my credit score. Can anyone recommend one?

Answer: Credit counseling companies don’t improve your score. They work on helping you pay off your debt. Check for a NFCC credit counseling member on the NFCC website. These are legit, non-profit companies that offer debt management plans for a nominal fee.

There are all sorts of credit repair companies out there. Almost all of them are pure scam. There is no way to fix bad credit. You just have to wait for the negative items to age off.

If you are carrying balances on credit cards, pay them off. Carrying balances of more than 30% hurts your score. Pay off the balances and your score will get a boost. Otherwise, it’s a matter of paying everything on time. You need at least 24 months of consistent, on-time payment history to improve your score.

Question: How will my credit be negatively affected if I use Non-Profit Cons Credit Counseling to help me with 1 Bill?
Until losing my job I never was late on bills but 1 company (Home Depot) will not work with me on their Extremely High monthly finance charges & extremely High Interest Rates. With the help of the non-profit Cons Credit Counseling Service I will pay it off sooner so in effect won’t that balance out any negative marks that going through them may cause?

Answer: You may want to enter into a non profit debt management plan like Consumer Credit Counseling Services (CCCS). They can negotiate reduced interest and payments. They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to “enrolled in debt management.” This does not damage your credit, but it may make it difficult to obtain new credit while you are enrolled in their program….so don’t use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would might be denied while you’re enrolled in the CCCS debt management program.

Question: Has anyone had a good experience with Consumer Credit Counseling Services, Money Management International?
This company is through Consumer Credit Counseling Service. After being unemployed for over 1 year, and used all my savings to pay my credit card bills I need the help of this type of service. I just got a job making 80% less than I was making before, and have less to pay the credit card companies. I called each credit card company, and very few will work with me. Has anyone had a positive experience with Money Management International?

Answer: They are a member of NFCC. This makes them a good choice.

Question: Is there any credit counseling company that works with CASHCALL?
I cannot pay cashcall anymore! I called most credit counseling agencies and they said they don’t work with them. Does anyone know if there is a credit counseling company or how to lower payment to cashcall?

Answer: Unfortunately no. CashCall (as you probably already know) is a vicious firm to deal with. They do not participate in any debt management programs.

As long as CashCall still has your bank account numbers, they will attempt to debit your account even if there is not sufficient money in there…leading to even worse problems in the form of bounced check and bank fees. If they still have direct access to your bank account, you might want to think about canceling your checking account to prevent this from happening.

Question: Credit Company is looking for wage garnishment even though they are receiving payments from Credit Counseling Service?
I have enrolled in a credit counseling service. 8 of my 9 creditors have agreed to the program and have been receiving payments for the last 4 months. Some have put my credit in good standing. One of the creditors is requesting wage garnishment although they are receiving payments through the Credit Counseling program. What is the next step I should take? Can they garnish both my wife’s and my income?

Answer: Before they can garnish your wages, they have to sue and win a judgment. Do they already have a judgment?

Are you sure they agreed to the debt management plan and are being paid? Not all debt management companies are legit. Have you contacted the credit counseling service?