By Mellody Hobson

Consumer credit counseling agencies provide two basic services: consolidation loans and consolidation plans.

A consolidation loan is a loan that combines and finances payments on other loans, while a consolidation plan is an arrangement in which a debt consolidator facilitates your bill payments and works with your creditors to reduce or eliminate interest and late fees.

In the latter scenario, rather than paying each individual creditor, you provide the debt consolidator with one lump-sum payment that it then distributes to each of your creditors each month.

Although these services sound helpful, they may make your situation more complicated and can be costly, so beware.

Even though most credit counseling services are "nonprofit," some debt management programs charge setup fees and/or ongoing processing fees. These fees can range from a monthly charge of $25 to as much as 20 percent to 30 percent of your overall debt.

In addition, many companies providing consolidation loans offer only short-term low interest rates. In other words, if you do not pay off the debt in full by a certain date, your interest rate may skyrocket.

Before seeking a credit counselor or debt consolidator, first contact your creditors to negotiate a payment plan and a lower interest rate on your own. Remember, you lose the ability to negotiate with your creditors once you turn over your debt to a collection agency.

More importantly, commit to changing your buying and borrowing habits before taking on any additional loans.

That said, if you have "exhausted" these direct avenues and still believe credit counseling and/or debt consolidation would benefit you, be sure to do your research.

Contact the Federal Trade Commission and Better Business Bureau to investigate complaints on any agency you might consider; request the educational background for your counselor; understand the fee structure; and request regular statements on the status of your accounts to ensure your creditors are being paid on time.

Finally, be wary of any organization that claims debt consolidation will be "painless," as well as those that claim they can easily clean up your credit report. Debt consolidation should be taken very seriously, and it will take time and effort to reduce your debt and improve your credit.