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Income down, bills up. Time for credit counseling?

An accredited professional will help you consider all options

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
I have approximately $19,000 in credit card debt. My income was recently reduced, and although never late on any payments, the debt is causing severe stress. If I work with a credit counseling agency to make payments to my creditors, how will this affect my credit score? I don't want to shirk responsibility, but the stress is overwhelming ... what are my options? Thanks very much! -- Kelly

Answer for the CreditCards.com expert

Dear Kelly,
Seeking help for your credit card debt is not shirking your responsibility. Working with an accredited credit counseling agency will allow you to learn more about your options for improving your financial situation, and you may simply be provided with a structured plan for repaying your debt in a reasonable amount of time.

The most important reasons to seek professional help for problem debt is to learn more about how you acquired the large amount of credit card debt, what you can do to avoid such problems in the future and the best options for repaying your debt in the shortest period of time. There are two large, respected accrediting agencies that offer credit counseling. I am a member of the board of one, the Association of Independent Consumer Credit Counseling Agencies, and I hope you use its services. The other major accrediting agency is the National Federation for Credit Counseling.

When you meet with a certified credit counselor, you will be asked to provide all your financial information so that the counselor can recommend the best course of action for you. By being honest with your counselor about your spending behaviors and financial actions, the counselor will be able to put together a list of recommendations that best fit your situation. You will also be provided with a workable spending plan that will help you get out and stay out of unwanted debt.

Debt management plans
One possible solution for you may be a debt management plan (DMP). If, with your reduced income, you qualify for a plan, the credit counseling agency will negotiate with your creditors on your behalf to help lower your monthly payments. You will make one payment to the credit counseling agency and the agency will disburse the payment to your creditors.

Generally, when you are placed on a DMP, your accounts are closed and a notation is included on your credit report that the account is in consumer credit counseling status or is being managed by a third party. The FICO credit scoring model does not factor the notation on your credit report into your score. However, some potential lenders view the notation as a negative.

Since you are not currently late on any of your accounts, you may be able to pay off your creditors yourself without entering into a DMP. Sometimes all that is needed is for an unbiased, emotionally uninvolved third-party to point out negative spending habits and how to better manage your income.

In some cases, people who seek help from a credit counselor do not have enough income to manage their debt loads and they are generally referred to an attorney for bankruptcy advice. I hope that will not be what happens in your situation. If it is, don't consider it a shirking of responsibility. I recommend exhausting all other efforts before filing bankruptcy, but the reason we have bankruptcy laws in this country is because sometimes it is necessary to receive help with debts and get a fresh start.

Take care of your credit!

See related: Check out credit counselors credentials first

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Published: February 2, 2009


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Updated: 09-30-2016


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