Case A:
You have only one or two cards and are able, or almost able to make the minimum payments. In this case, you may want to call your creditors and discuss your situation with them. Together you may be able to create a plan to pay off your debt.

Case B:
You have multiple cards, are unable to make the minimum payments, and cannot reach a payment agreement with your creditors, then credit counseling is a good solution. Note that the Bankruptcy Protection Act of 2005 also requires individuals have credit counseling if they seek bankruptcy protection.

How Credit Counselors Help You
A debt-management plan is a program worked out with each of your creditors, specialized for you. You will make a monthly payment to the credit-counseling agency and they will distribute it to your creditors on your behalf. This allows you to make one payment each month to your credit-counseling agency, rather than multiple payments to many creditors.

In addition to credit cards and store cards, credit-counseling agencies can also make payments to other creditors, including doctors, lawyers, and others. These types of creditors do not usually offer benefits on the program, but it is convenient to have one monthly payment.

When you enroll in a debt-management plan (DMP), you agree to:

• close all of your unsecured credit accounts
• not take on any additional unsecured credit while on the program
• make your monthly payments on time
• monitor your credit card statements to be sure your payments are being credited correctly and that your debt is being paid off

In exchange, on the DMP, you may receive a variety of benefits from different creditors, including:

• reduced interest rates
• reduced or waived late fees
• accounts made current.
• collections will stop after a few (2-3) consecutive payments
• payments may be reduced by 30 percent
• the time to pay off your debt will go from as many as 20 years to fewer than 5 years

What Credit Counseling Can't Do
Using a credit-counseling service can eliminate much of the stress that comes from dealing with creditors and overdue bills. But a debt-management plan does not erase your credit history, and creditors will continue to report information about accounts that are handled through a debt-management plan. In fact, creditors may report that an account is in financial counseling, or that other concessions have been made.

Debt-management plans usually do not cover secured loans-loans backed by collateral. A car loan or a home mortgage is a secured loan because if payments are not made, the car or house can be repossessed. If you enter a debt-management plan, you must continue to make payments directly to these creditors.

When to Say 'No' to Credit Fixers
Choose your credit-counseling service carefully. The companies that advertise credit-repair services, rather than credit counseling, are usually offering something they can't provide. Don't trust a company that claims it can remove accurate, negative information from your credit report, wants you to pay for credit repair services before any services are provided, or recommends that you not contact a credit bureau directly.

If a company suggests making false statements such as

• dispute all information in your credit report
• take any action that seems illegal, such as creating a new credit identity
• make false statements on a loan or credit application
  they are asking you to commit a crime for which you can be prosecuted.

Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the promised services. They also must give you a written contract that spells out your rights and obligations, and they must give you a copy of a pamphlet called Consumer Credit File Rights Under State and Federal Law before you sign the contract.