Outside Assistance

What's better between a consumer credit counseling agency vs. a debt management program? For those looking for outside help in reducing credit card debt there are two primary options. One is to use a consumer credit counseling agency. The other is to use a debt program with a debt management company. Both have their pros and cons.

Credit Counseling

When credit counseling is offered, the result is usually the same outstanding balances but with improved terms. A counseling service attempts to work with you and your creditors to negotiate more favorable terms so that debt will be paid off faster or for a reduced payment, both due to lower interest rates or improved terms. Using credit counseling may have a negative impact on your credit score but if you must use an outside firm this is an option worth checking into. There are reputable counseling agencies available if you shop around.

Debt Management

A debt management program is something different. Here, a company will typically pay off your debts and negotiate with your creditors to greatly reduce or even cut the principal balances owed. This will also impact your credit and leaves you at risk of many collection calls while terms are being worked out. Payments are normally made directly to the debt management company to pay them back. There are many questionable companies in this business so do your homework before jumping in.

The Best Option

Credit Counseling or Debt ManagementThe best option for eliminating credit card debt is to do it yourself. If you can manage it this will save your from a damaged credit score, but it is not easy. The first thing you need to do is stop charging to your cards. Next, pick the card with the highest balance and pay every dollar you can afford to that card above and beyond the minimum payment to eliminate it. If you don't have the income to do that, consider what you can do without like cable television to save money. If you are out of options there consider a part-time second job to increase your income. It's hard work, but handling credit card debt yourself is the best option for digging out of a hole.

For many, getting out of debt is manageable with a few changes that will increase income or reduce expenses. For others, help from an outside agency becomes the only choice left. If that is the case for you, understand the difference between these two options, check them out carefully, and pick the option that is best for you.

Photo credit: Alan Cleaver via Flickr, CC BY 2.0