If you find yourself too far in debt to make personal strategies work successfully, you have a few choices: you can use credit counseling, or, as a last resort, legal strategies.

Regarding counseling strategies, you may be able to get help from either nonprofit credit counseling agencies (CCAs), which can help you reduce your monthly interest charges, or you can work with for-profit agencies, which can help you consolidate and negotiate your debt.

If these agencies cannot help, you may need to seek legal help to file for bankruptcy. Regardless of your choice, check out the company you select with the Better Business Bureau before you spend any money.

Non-profit Credit Counseling Agencies: Nonprofit credit counseling agencies are agencies set up specifically to help people reduce their credit card debt. These nonprofit agencies have arrangements with many credit card companies, and by working with those credit card companies, you can have your interest payments reduced or even eliminated with specific creditors. The creditors give these nonprofit agencies a rebate that comes from what the creditors are able to collect from you. Creditors are generally willing to work with credit counseling agencies because they would rather get some money back than none at all.

Using these services will cost you about $15 to $20 for setup and about $12 per month after that. If you work with a credit counseling agency, realize that it will likely show up on your credit reports. However, your goal is to reduce your debt—not increase it through paying high fees. If you successfully complete the program, your success may be noted on your credit reports as well.

Nonprofit credit counseling agencies can be found by calling the National Foundation for Credit Counseling (1-800-388-2227). The following are a few questions you should ask nonprofit credit counseling agencies before you sign up to work with them:

• Are they licensed? (To verify their answer, ask for their tax ID)
• Are they a member of the National Foundation of Consumer Credit (NFCC)?
• Are they accredited through the Council on Accreditation?
• Are their counselors certified by the NFCC?
• What is their monthly management fee? Is it tax deductible?
• How long would you be in their program? (It should rarely be longer than five years)
• How much would you be paying on your debts each month? (Payments are usually taken directly from a checking or savings account)
• Will you talk with the same person every time or many different people?

These questions will be helpful as you decide whether this is the type of organization you would like to work with.

For-Profit Credit Counseling Agencies: For-profit credit counseling companies are companies that make money by helping people get out of debt. There are two main methods through which they work: debt consolidation and debt negotiation. There are other methods of debt consolidation, but these are the main methods used by for-profit agencies.

Debt Consolidation. The goal of this strategy is to consolidate debt into a single loan with a lower interest rate. For-profit agencies make money on loan origination charges and other loan fees. They may also get homeowners into an interest-only home loan and use the excess cash to pay off debt. Borrowers should realize, however, that interest only mortgages have an interest only option for a specific period, i.e., 1 to 7 years. After the interest only period, the loan becomes fully amortized.

Debt Negotiation. Debt negotiators work with creditors to reduce the interest rate and principal on certain types of loans, especially credit cards. Initially, the consumer makes monthly payments to the debt management company, which may hold those payments until the consumer's accounts are long overdue. At this point, the debt management company attempts to negotiate with the creditors to reduce the consumer's interest rate and principal. They are sometimes able to significantly reduce the amount owed; however, help from these companies is not cheap. They typically charge a two-month retainer fee up front to work with your creditors. In addition, should this strategy backfire, you may have many months of nonpayment history on your credit report even though you made monthly payments as required to the for-profit credit counseling agency.

Before you begin working with a for-profit credit counseling agency, be sure you understand how they make their money. If it doesn't make sense to you, go with another company! The following are a few questions you should ask for-profit credit counseling agencies before you sign up to work with them:

• What types of loans will they help you consolidate or negotiate?
• How much will their services cost you?
• How do they get paid? Who pays them?
• When do they get paid?
• What is the monthly fee? Is it tax deductible?
• How long will you be in their program? (It should never be longer than five years)
• How much will you be paying on your debts each month? (Payments are usually taken directly from a checking or savings account)
• Will you talk with the same person every time or many different people?

There are benefits to using these types of programs. First, these companies may be able to significantly reduce the interest charges and even the principal on some types of debt. Second, they may be able to help you out of extreme debt if you follow through with them.

There are also drawbacks to working with these organizations. Most importantly, they are very expensive and there is no guarantee they will be able to help. In addition, these organizations are established mainly to make money, which means you will pay much more for their help than you will pay for the help of nonprofit credit counseling agencies. Remember, these companies stop making payments before they begin to negotiate, so working with them may have a significant negative impact on your credit reports. Watch for these warning signs; go somewhere else if you notice any of the following:

• High, up-front or “voluntary” fees
• Vague contracts that do not explain fees
• Promises that sound too good to be true (for example, a promise that creditors will cut the principal owed by 50 percent)
• Fees for just distributing payments to creditors
• Pressure to sign up for debt-repayment services immediately before fees are disclosed
• Fees for phone consultations

Remember, you are working with your money. Use it wisely, and find a program that can help you resolve your debt issues in a consistent, logical way and within a reasonable time frame.