Credit counseling agencies can be very helpful, but only should be used if you really need them. If you are severely in debt and cannot make monthly payments, you may want to consider speaking with one.

Credit counselors do just that – they will counsel you on the proper use of credit and will work with your creditors to reduce your interest rates, your minimum payments and even the balances owing. The lenders are often willing to accept less than they are due because debt collection is expensive for them and they have generally good luck with the reliability of the credit counselors.

The counselor will put you on a budget and receive a single amount from you, from which they will then send portions directly to your creditors. They should provide you with an accounting of who has been paid and how much on a regular basis. The counselors are not paid by you, they are paid by the creditors, usually a small portion of the amounts they recover for the lenders. This is known as the “fair share” payment system, and it has been used successfully for many years.

Some consumer advocates, however, feel that this approach has led to consumer abuses and that these agencies are actually working for the benefit of the lenders. In the final analysis, however, reputable credit counseling agencies work for the benefit of both consumers and lenders.

Importantly, credit counseling will not allow you to go out and run up credit card balances once more. In fact, the counselor will often cut up your credit cards so they can tell your creditors that they have done so, and that you are determined to live within your means from now on. Helping consumers become “financially literate” is an essential part of the service they perform.