Editor's note: This article appeared originally at Debt-Proof Living on March 1st 2012. 

If there’s one thing that makes many people go hmmmm, it’s the topic of credit counseling. Many people still confuse credit counseling, which is designed to pay back all of what a borrower owes, with debt settlement, which is designed to negotiate payoffs of 50 percent or less of what the borrower owes. Others assume incorrectly that credit counseling is the same as debt consolidation.

Credit counseling is simply a process that involves offering education to consumers about how to avoid incurring debts that cannot be repaid through establishing an effective Debt Management Plan (DMP) and budget. Credit counselors are often able to negotiate lower interest rates and a more favorable payback schedule.

Here’s when a credit counselor’s debt-management program may help you:

Your unsecured debt is mostly on credit cards. Debt-management plans typically can’t deal directly with overwhelming medical bills, student loans or other similar debts, although a credit counselor may offer advice and education about budgeting and money management that could help you cope with these bills.

You are ready to get on a strict budget. A debt-management plan requires you to turn over a certain dollar amount each month to the credit counselor, who distributes the money to your creditors. You usually have to trim your spending fairly deeply to come up with the cash.

You are determined to avoid bankruptcy. Credit counseling is designed to help you avoid bankruptcy or debt settlement.

You’re not already in too deep. The problem with this form of help is that people wait too long to seek aid. If you have enough income to pay the minimums on your bills and a little bit extra, you’ll have the best shot at success with credit counseling. Otherwise, bankruptcy or debt settlement may be better options.

DPL recommends NFCC

For most of credit counseling’s history, the industry has been dominated by the National Foundation for Credit Counseling (NFCC), whose nonprofit affiliates known mostly as Consumer Credit Counseling Services offer lower interest rates and payment plans for people who have fallen behind.

NFCC, offering credit counseling and financial rehabilitation since 1951, has become the gold standard in credit counseling. It is the only counseling organization DPL recommends to those who need this level of help.