In February I wrote about the care one must take when deciding between credit counseling and consolidation.  Columnist Herb Weisbaum concluded in an msnbc article that credit counseling is generally a better choice.  Weisbaum argued that too many debt settlement programs advertise services they simply cannot provide without charging unreasonable fees to the debt holder.

Better to err on the side of caution.  If there are many debt settlement agencies involved in fraudulent activity or misleading marketing tactics, then better to work with a counselor and organize a plan to pay your creditors yourself.

Looking into this topic a bit further, it appears as though there are circumstances in which someone would benefit from consolidating.  In fact, depending on the amount of debt owed, it might be the better option.

In my last post, a novel visualization from Mint.com titled Help! Too Much Debt! looks at debt in three distinct categories: manageable debt, troubling debt, and impossible debt. In each phase or condition, counseling, consolidating, and declaring bankruptcy are options available to handle debt.  So what to do and in which phase?

Manageable Debt

Credit counseling is the way to go here.  Let a counselor negotiate  lower interest rates and lower monthly payments with your creditors.

Troubling Debt

Here, it appears consolidation is a good option so long as you research the consolidator and verify its reputation before hand (more on that to follow).  Consolidation combines your previous debts into one new loan and extends the time period in which you are obligated to pay, but you will pay higher interest and services fees on this new loan.

In some instances a consolidator may even negotiate a reduction in your principle amount owed through a process called “settlement”.  Again though, be careful and avoid fees from the consolidator that offset the financial relief a settlement may grant you.

Impossible Debt

Get a lawyer and talk about bankruptcy as a last resort.  First get a lawyer, a lawyer that will provide at least one free half hour of consultation.  Don’t be afraid to shop around.

Finally, as daunting as it may sound, before any of this, get on the phone with your creditors and try to negotiate lower APR, change movable APR to fixed APR, and lower monthly payments yourself.  Tell them that your next step will be counseling, consolidation, or bankruptcy if need be, and they have every reason to work with you at present time.

If credit consolidation is the option you must choose, check your consolidator’s reputation against the Better Business Bureau, the Office of Consumer Credit Commission at www.occc.state.tx.us, the Finance Commission of Texas at www.fc.state.tx.us, the Office of the Attorney General at www.oag.state.tx.us, or the Association of Settlement Companies at www.tascsite.org to learn more about the company.