Bankruptcy causes a lot of financial distress. Before filing for bankruptcy, you probably have heard terms like “credit counseling” and “debt negotiation” which could help you out of your financial distress. There are multiple ways to define these terms, and some of them may help you manage your debt before you have to resort to bankruptcy. Debt settlement companies that charge upfront fees should generally be avoided. Further, make sure that any of the agencies you work for are accredited and well-known.
Debt negotiation is a type of debt settlement where you or a third party attempt to negotiate with creditors to lower the amount you owe or settle debt obligations.1 If you hire a debt negotiation firm you must be wary that they are credible and give you proper advice – creditors are under no obligation to accept partial payment or nonpayment.2 It is best to contact a reputable nonprofit credit counseling agency instead. In order to negotiate your debts you should be involved in the debt settlement process so that you remain informed.3
You can consolidate your debt to lower your interest rates or payment through credit counseling or through a debt consolidation loan.4 Debt consolidation also refers to taking out lower interest rate loans to pay off other multiple loans.5 A�This is particularly helpful for credit card debt, which carries a much higher interest rate.
If you choose credit counseling, it typically means a third party helps you through high levels of debt.6
Credit counselors are typically nonprofits and advise you about how to manage your money and debts to budget your payments.7 Credit counseling agencies do not negotiate reductions in how much you owe or advise you to stop paying debt, but may negotiate your monthly payments to reduce them overall.8 This type of debt management is probably the best because you pay your creditors back each month, but higher interest rates may be reduced and the credit counseling agency will work with you to reduce payments if possible.9
All of these solutions are viable instead of bankruptcy as long as you know what you are doing and make sure that your sources are credible. However, legal representation will probably help you to gain more authority in credit negotiations and will help you sort out what is best for your current situation.
 Kathleen Michon, Debt Negotiation Firms, nolo.com, http://www.nolo.com/legal-encyclopedia/debt-negotiation-firms-32217.html (last visited Oct. 7, 2014).
3 Debt Settlement – What it is & How it works – Helpful tips & advice, consumerrecoverynetwork.com, http://consumerrecoverynetwork.com/debt-settlement-faq/ (last visited Oct. 7, 2014).
4 Arizona Debt Consolidation as an Alternative to Bankruptcy, arizonabankruptcylaw.com, http://www.arizonabankruptcylaw.com/debtconsolidation.html (last visited Oct. 7, 2014).
5 Lauralynn Schueckler, Debt Consolidation vs. Debt Settlement vs. Debt Management, financialeducation.nfcc.org (Apr. 13, 2012), http://financialeducation.nfcc.org/2012/04/13/debt-consolidation-vs-debt-settlement-vs-debt-management-program/comment-page-1/.
6 Fact Sheet: Credit Counseling Vs. Debt Settlement, sbcountyadvantage.com, http://www.sbcountyadvantage.com/media/docs/CDH/Foreclosure%20Prevention/HOPENOW_factsheet.pdf (last visited Oct. 7, 2014).
7 What’s the difference between a credit counselor and a debt settlement company?, consumerfinance.gov, http://www.consumerfinance.gov/askcfpb/1449/whats-difference-between-credit-counselor-and-debt-settlement-company.html (last updated June 18, 2014).
9 Laurelynn Schueckler, supra note 5.