Credit counseling involves analyzing both current income and living expenses and working out a budget to fit a clients needs and goals. Your debts and assets will be looked at to learn your financial well-being and tips will be given to stabilize your situation. Credit counseling helps you discover better money management skills and may offer information to help you prevent common financial problems.

Debt counseling encompasses helping people who have taken on too much debt and are going through a difficult and close to impossible time making all of the monthly payments. Two basic versions of debt counseling exist - not-for-profit organizations that typically offer credit counseling and then show you how to get out of your negative debt situation, and for-profit businesses that also provide credit counseling and, for a fee, take on the job of getting you out of your messy debt predicament.

The objective of debt counseling is to help you find the smartest solutions to your financial problems. These include:

• Avoiding the necessity of declaring bankruptcy.
• Protecting your paycheck from being garnisheed and averting legal action.
• Stop phone calls from collection agencies.
• Attaining good financial assistance from knowledgeable people.
• Lowering or eliminating the interest on your debts.
• Reducing your monthly payments to a reasonable level.

Debt counseling will start with a review of your income and living expenses to determine the magnitude of the problem. Then you and your counselor will determine a course of action. You will initially make critical decisions such as what expenses you can eliminate and/or reduce (perhaps trading down to a more inexpensive vehicle or having dinner out a lot less often). Following a complete assessment of your circumstances you will build a budget that you have to abide by.

Once you've set the budget you'll know if there's enough funds to gradually get your debts back under control. In the event that it is concluded that there is not enough money around to make full monthly payments to your creditors, but there is sufficient money to make a practical monthly payment you will have to think of a plan to repay your debts over an extended time period. If after intently reviewing your debt situation you are in such horrible shape that bankruptcy is the one and only answer then that option will have to be explored by you.

Assuming that your situation is bad enough that you are unable to pay full monthly payments to your creditors but not bad enough that you have to declare bankruptcy, a debt repayment plan is in order. The best and most economical method of fixing your credit, particularly if your debts are low below $5,000 and you have a great amount of discipline to avoid more debt until your finances are back in order, is through your own efforts. Suffering in silence is not a good idea, swallow your pride and have a conversation with your creditors to negotiate with them, they understand that recovering some money is better than recovering none and they will try to agree to your requests. Creditors know that a person keen to negotiate a debt provides them with a better deal than a person who disregards their obligation and are typically quite willing to settle for less than what's owed. Just speaking to a creditor and letting them know about your financial hardships could result in them offering a lower interest rate temporarily. Other strategies involve employing a credit card balance transfer where a company will absorb your credit card debt from other credit card businesses and have you pay a lower interest rate.

If you are sure you're not able to take care of your credit problems by yourself then you can always talk to a credit counselor who will do all of these things on your behalf. For-profit counseling organizations will develop a realistic payment schedule on behalf of their client, one the client can live up to. This plan will possibly include a reduced payment schedule to creditors and a decrease in finance charges, late fees, and over-limit fees, that the creditors will usually grant. Each month you give a payment to the credit counseling service, who then send payment to your creditors. Many creditors make little payments to credit counseling services, however the client's payment is directed totally toward reducing debt.

Your individual credit rating could very well be low because of the poor handling of debt. Typical signs of bad debt management that eventually lower your credit rating include: you went bankrupt, you have several lines of credit, you aren't keeping up with your bills, etc... Both debt management and credit counseling are seen as positive steps toward getting rid of your debt and fixing your credit. If you stick to your program and avoid accepting more debt you'll be able to upgrade your credit rating that much faster.