Credit counseling agencies do much more than simply negotiate repayment plans with your creditors. The most reputable agencies offer other services like financial education, budgeting counseling, credit counseling, bankruptcy education, debt management plans, and even mortgage and homebuyer counseling.

Before giving you a solution to your credit card debt, the credit counselor should talk with you about your finances including your income, expenses, and your credit card debt.

What is a Debt Management Plan?

If, after talking with your credit counselor, it’s decided that you need help paying your credit card debt, you will be enrolled in a debt management plan. A debt management plan or DMP is a payment schedule that allows you to repay your debt.

Before the start of your DMP, the credit counselor contacts your creditor to negotiate a reduction on your minimum payment and interest rate. Once your creditors agree to the DMP, you begin sending a single monthly payment to the credit counseling agency. The credit counselor divides your payments and sends them to your creditors.

It’s important that you continue sending your credit card payments directly to your card issuer until the credit counseling agency confirms that you’re enrolled in the DMP. Then, once you’re on the DMP, continue to check to make sure that your credit card issuer is receiving your credit card payments on time. Late and missed payments could result in you being dropped from the DMP. If that happens, your previous interest rate and minimum payment will be reinstated.

How Credit Counseling Affects Your Credit

Your credit report may be updated to reflect that you’re enrolled in a debt management plan. While the listing itself doesn’t hurt your credit score, it could be perceived as negative by lenders and other businesses that review your credit report. It indicates that you had financial trouble and didn’t pay your credit card bill as reviewed. Negative information only remains on your credit report for seven years. So, any negative information associated with credit counseling will not affect your credit standing forever. Ultimately, credit counseling is better than the alternatives of bankruptcy or not paying at all.

While you’re enrolled in a debt management plan, you won’t be able to use your credit cards. Some credit card issuers close the credit cards and others take away your available credit to keep you from making additional charges on your credit card. It’s better that you don’t take on new debt while you’re on a DMP because it will be harder to pay off your existing credit card debt.

How Much Does Credit Counseling Cost?

Fees for consumer credit counseling vary but are typically between $10 and $50 a month. Reputable credit counseling agencies should be able to waive the monthly fee if you are having extreme financial hardship and cannot afford to pay the monthly fee. The fee is added to your total monthly payment, including the amount you pay toward your credit card debt.

Avoid Credit Counseling Scams

Not every company who promises to help pay off your credit card debt is a reputable credit counseling agency. Some companies are, unfortunately, only trying to make money from you. When you’re shopping for a credit counseling agency, be on the lookout for scams.

Choose a company certified by a national agency. Look for a credit counseling agency that’s associated with one of the following agencies: The National Foundation for Credit Counseling (NFCC), the National Association of Certified Credit Counselors (NACCC), or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). All these associations allow you to search for a credit counseling agency through their websites.

Do not pay an upfront fee. The initial counseling session should be free. If a credit counseling agency asks you to pay upfront, do not pay anything, and find another company.

Check with the Better Business Bureau. The company should not have any unresolved disputes with the Better Business Bureau.

A credit counseling agency can’t change your credit report. A sure sign of a credit counseling scam is a company that promises to delete information from your credit report. Any company that says it will change your credit report is more likely a credit repair company, which should be avoided all together.

If a credit counseling agency takes advantage of you, you can report them to the national agency they’re affiliated with (the NFCC, NACCC, or the AICCCA), the Federal Trade Commission, and your state Attorney General.

Credit counseling agencies don’t have special abilities or relationships with credit card companies. You have the power make the same negotiations they do. But, you may choose a credit counseling agency if you don’t have the confidence to negotiate with your creditors or if you lack the discipline it takes to stick to a debt management plan.

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You may be able to live with credit card debt for awhile, but if you don’t start paying it off soon, the debt may become too much to handle. If you think you can continue making minimum payments on your credit card debt forever, think again. You never know when your credit card issuer will raise your minimum payment, making your credit card payments unaffordable. If that’s not enough to convince you to pay off your credit card debt, here are seven reasons you should pay off credit card debt.

To raise your credit score. A large part of your credit score – 30% to be exact – is based on your credit card debt. The higher your credit card balances are compared to your credit limit, the lower your credit score will be. A low credit score will limit your ability to get approved for new credit cards and loans. It could even cause you to pay higher interest rates on any credit cards and loans you get approved for. As you pay off your credit card debt, your credit score will rise and you’ll begin to see the benefits of having a better credit score.

To avoid paying more interest. There’s a cost to keep a balance on your credit card beyond the grace period. Each month you have a credit card balance, you’ll pay interest charges. The longer it takes you to pay off your credit card debt, the more interest you’ll pay. Of course, paying off credit card debt means you’re no longer padding credit card companies’ pockets with interest payments.

To keep more cash for yourself. Think about how much you’re spending on credit card bills every month? Now imagine being able to keep that money to spend on something for yourself – something you own free and clear, no payment, no interest. Paying off your credit card debt frees up cash that you can start putting toward your retirement, a family vacation, an emergency fund, or a new television. You’ll have to sacrifice some cash in the short term to pay off your credit card debt, but if you think of it as an investment, you’ll realize that you’ll have more money to spend with your credit card debt out of the way.

So you can retire comfortably. Once you retire, the last thing you want to worry about is paying off a ten- or twenty-year old credit card balance. Many retirees have a limited income that barely covers the mortgage and other living expenses. Adding credit card debt makes retirement more difficult, especially if you’re living on a fixed income. When you retire, you’ll want to pay as few bills as possible. Pay off your credit card debt while you’re still gainfully employed and you’ll be able to enjoy your retirement much more.

To reduce the amount of money you owe. As long as you owe money to someone else, they have a certain amount of power over you. Being indebted to someone, especially a large corporation like a credit card company, can be a scary feeling. The sooner you pay off your credit card debt, the sooner you can be free of lenders. You’ll have fewer people sending bills to you every month requesting you send them money.

So you can borrow money for a house, car, or business loan. When you apply for a loan, the bank will look at how much credit card debt you have to gauge whether you’ll be able to make your loan payments. If your credit card debt is too high, the lender will estimate that you won’t be able to handle your loan payments and will probably deny your loan application. Paying off your credit card debt will improve your chances of getting loan approval.

To escape ever-changing credit card terms. As long as you have credit card debt, you’re subject to the credit card issuer’s terms and conditions, which can change at any time. Credit card issuers can raise your interest rate, impose new fees, shorten your grace period, or any number of things that make it more expensive and less convenient to have credit card debt. The only way to escape the credit card issuer’s grasp is to pay off your credit card debt and stay away from credit card debt for good.

Once they’ve repaid their credit card debt, many people swear they’ll never use debt again. You don’t have to go to this extreme to avoid credit card debt. You can continue using credit cards for the protection and convenience, but pay your balance in full each month to avoid the negative side effects of having too much debt. That way you take advantage of credit card benefits without dealing with the costs.

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1. Charge what you can afford to repay.

The easiest way to avoid credit card debt is to keep your purchases at an affordable level. It’s when you start charging things you can’t afford that you begin to encourage credit card debt. When you charge more than you can afford, it takes longer to pay off your balance.

2. Get the right credit card.

There are different credit cards for different spending habits. Before you apply for a credit card, look at its features – the annual fee, the grace period, the interest rate – to see if it meets your needs. If you get just any credit card out of desperation, you’re more likely to end up in credit card debt.

3. Know your interest rate.

Your interest rate affects the amount you pay for credit. The higher your interest rate, the higher your monthly interest charges, the fee known as a finance charge. Your interest rate can be incentive to pay off your credit card balance. For example, if you have a high interest rate like 29%, you’re more like to pay off your credit card balance than if you have a lower interest rate, like 4%.

4. Read the fine print.

Often buried in the text of your credit card agreement are details that could help you avoid credit card debt. For example, the penalties associated with going over your credit limit or making a late payment. There may be fees on your credit card that you wouldn’t realize unless you read your credit card agreement.

5. Understand the consequences of credit card debt.

Knowing that credit card debt has serious effects might be enough to steer you away. People who are deep in credit card debt have been known to be severely depressed and devastatingly, some commit suicide. There are less extreme, but still negative effects of credit card debt. Being in credit card debt keeps your money tied up. As long as you owe the credit card companies, you’ll never be able to spend your hard earned money on the things you want.

6. Treat your credit card more like cash.

Studies show that people are less likely to spend cash compared to a credit card. That’s because we feel a certain pain when we have to separate with our cash. While you don’t immediately lose cash when you use a credit card, you’ll eventually have to spend money paying down your credit card bill. If you spend with your credit card the same way you would with cash, you’ll keep your credit card balances at a reasonable level that’s easy to repay.

7. Keep only a few credit cards.

The more credit cards you have, the more credit you have available for using up. Having several credit cards makes it easier to charge up balances that you can’t afford to repay. If you have more than one credit card, “what you can afford to repay” should the split among all your credit cards. For example, if you can only afford to repay $300 in credit card debt a month and you have 3 credit cards, then you can only afford to charge a maximum of $100 on each of your credit cards. Limiting your credit cards makes it easier to avoid credit card debt.

8. Pay your bill on time.

Late payments have many consequences. You get charge a late fee. Your interest rate could go up. The late payment gets updated on your credit report. Your next minimum credit card payment will be even higher. You’ll have to pay the minimum payment from the previous month, the minimum payment from the current month, plus a late payment fee. The more delinquent you become on your credit card, the harder it is to get caught up because your minimum payment continually increases.

9. Recognize the signs of credit card debt.

Often people could avoid credit card debt if they only knew they were headed that way. You might be on the road to credit card debt if you’re only making minimum payments on your credit card, you’re charging everyday items, or you’re using balance transfers to avoid making a credit card payment. If you recognize you’re headed toward credit card debt, change your spending and payment habits to get control of your debt before it grows too large to handle.

10. Avoid credit cards.

Of course, the most obvious and easiest way to avoid credit card debt is to avoid credit cards all together. If you never use a credit card you don’t get the chance to accumulate any credit card debt. Of course, we need credit cards to help build a good credit history, so completely avoiding credit cards may not be feasible. Since that’s the case, rely on the other nine steps talked about above to help you avoid credit card debt.

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