Credit counseling includes everything from budgeting to teaching money management skills to working out payment plans. Many credit counseling agencies will offer you a debt management plan if it is appropriate for your situation.

This differs greatly from debt negotiation. In debt negotiation, you attempt to arrange a lower payoff amount than the debt you actually owe. No creditor is required to negotiate with you. Many will, if they believe, it is the only way to get at least some of the money you owe them.

So what do they have in common?

- Both are methods to help you pay off your debt.

Debt negotiation attempts to lower your debt, so you can make the payments with your current lifestyle. Credit counseling works on your financial discipline to help you pay off your debt and works out a debt management plan which may include the consolidation of loans to lower the payment on them.

- Both are offered by independent agencies which you will need to check out for professional ethics. Remember that even non profit organizations can charge fees for their services. Some of the agencies charge enormous fees which can easily be as high as your original debt. Check with the Better Business Bureau before you agree to work with any agency.

- Neither one can guarantee to have related entries removed from your credit report such as late payments or non payments. Creditors by law have to provide accurate information to credit reporting agencies, they do not have to remove accurate information. Some of the information can stay on your credit report for a long time. For example, a bankruptcy will remain on your record for 10 years.

- They can both keep you out of bankruptcy.

How do they differ?

- With credit counseling you end up with some new financial skills to use in the future. Debt negotiation will at the most teach you how to write a debt settlement letter.

- With credit counseling you work out a budget to follow. You are still on your own with that one if you choose debt negotiation.

- Credit counseling attempts to lower your payments by consolidating loans at a lower interest rate while debt negotiation tries to have creditors write off some of your debt as a loss.

- There is no tax impact with credit counseling. Debt forgiven as part of debt negotiation can be considered as income by the IRS and will be taxable.

- Ethically, credit counseling is preferable because you will most likely be paying off your entire debt versus a small portion of it. Thus you are taking care of your responsibility and not walking away from it.

If you end up consolidating a loan, pay attention to what you are doing. If you are getting a secured loan, understand what your collateral is. If it is your home, then if you fail to make payments this time, you will lose your home. It may be your only option for consolidating your debt, but at least know what the consequences could be.

The Federal Trade Commission has published a great article called ‘Knee Deep In Debt’ where you can find more information on both credit counseling and debt negotiating. Pay particular attention to their cautionary notes. Do not let any organization convince you that they can deliver miracles. Be realistic in your expectations. If it were that easy to live beyond your means and get away with it, it would be much more common.