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Credit counseling or debt counseling  is the process by consumers are advised on how to pay off current debts and avoid incurring debts which cannot be paid off.  It usually includes negotiating with existing creditors to devise a debt management plan (DMP). However, using a debt consolidation service may reflect negatively on the credit score of  the consumer.

Credit counseling agencies are common in USA and Western countries, but not in other parts of  the world, where most transactions involve cash payments. The debt management plan (DMP) set up by the credit counseling agency makes it easier for a debtor to pay back the debts, since these usually offer lower interest rates and reduced payments.


One of  the main advantages of  joining a debt management program is that instead of  making multiple monthly payments, the creditor can  make a single monthly payments. Often, a debtor may miss making payments, not because of lack of  funds, but because he has forgotten the payment due date or the bill was not received on time. 


The single monthly payment may also be less than the total amount due from the debtor, since the creditors find it easier to process large payments from the credit counseling agency  compared to small amounts from multiple debtors. Typically, most debtors find their monthly payments reduced  by 10-20%.


Usually a customer with a defaulted credit card pays an interest of  30%, but if  the customer joins a debt management plan, some banks reduce the interest to 0-10% . Only the balance amount which is due has to be paid. So consumers can pay off their credit card debt in a much shorter time.