Debt Counseling: Make it Work for You

Are you worried about mounting debt and its effect on your credit? Can't seem to make traction on the money you owe creditors? Perhaps it's time to enlist the help of an expert in the form of a debt counseling service.

Debt counseling offers a wide range of services, including advice on debt management, budgeting, and money management.

Take the time to learn more about debt counseling services. Learn about the benefits they provide before committing to a particular resource.

Be prepared to ask any debt counseling organization questions and research them online before enrolling in a program.

What is debt counseling?

Debt counseling is a service that aids consumers experiencing debt, credit, and money challenges.

Credit counseling services, often nonprofit organizations, first scrutinize your financial situation. They can provide recommendations, guidance, and helpful resources to help manage your debt.

Debt counseling is helpful to those who have difficulty paying debts like credit card bills and monthly loan payments.

Many folks who benefit from debt counseling experts have high-interest debt that they have not been able to manage correctly on their own.

What are debt counselors?

Credit counseling organizations are staffed with trained and certified counselors. 

They are experts in debt and financial management, budgeting, consumer law, and consumer credit, according to the Consumer Finance Protection Bureau (CFPB).

When you enlist a credit counseling service, one or more professionals will be assigned to your case. First, they analyze your financial situation. Then they attempt to guide you in devising a customized strategy to manage your debt and credit problems better.

How is debt counseling different from credit counseling?

Debt counseling is simply another term for credit counseling.

Although they mean the same thing, when searching for help, credit counseling is more commonly used.

Types of Debt Counseling Services Available

A worthy debt counseling organization can provide several different valuable services, including:

• Thoroughly reviewing your financial picture and determine areas of concern.

• Helping you obtain three free credit reports (available from Experian, Equifax, and TransUnion). Explaining how to interpret them. Helping get a copy of your credit scores.

• Recommending best practices for managing your debt and your finances.

• Aiding you in creating a realistic, workable budget.

• Providing no-charge workshops and educational resources.

•  Safeguarding and/or rebuilding your credit.

•  Communicating with collection agencies and lenders by passing or handling debt-related repossessions and lawsuits.

• Deciding if bankruptcy is a worthy option as a last resort.

• Organizing a debt management plan (DMP) to assist you in paying down what you owe.

A major benefit that a debt counseling organization offers is helping you comprehend your credit scores. They can help you find ways to improve your credit.

How the Debt Management Plan (DMP) Works

The goal of a DMP is to negotiate with your creditors to lower your interest rate. They will also attempt to get fees waived, extend your repayment terms, and bring past-due accounts current.

With a DMP, you deposit one simple payment monthly into a special account with the help of the debt counseling organization. Typically, the length of the program is five years.

They pay your separate credit card bills and other debt obligations based on a pre-arranged payment schedule.

You may be obligated to close certain credit cards or accounts, too. But the debt counseling service will typically not arrange any reduction in the amounts you owe.

The debt counseling organization you pick should not pressure you into a DMP as your sole strategy. A DMP should be offered as a possible option you are not required to pursue.

How to find a debt counselor

You can find a debt counselor/debt counseling organization by searching online. Also, ask trusted friends or family for referrals to organizations they have worked with.

To locate a reputable debt counselor, check with industry sites. Some examples are the National Foundation for Credit Counseling, the Financial Counseling Association of America, the U.S. Trustee Program, and the American Association for Debt Resolution (AADR).

But don't stop there. Take the time to vet any potential debt counseling organization with your state consumer protection agency, state attorney general's office, and the Better Business Bureau.

How to pick a debt counselor

Before choosing the right debt counseling service, ask these questions.

• Is in-person counseling available?

• What fees are charged by the organization? Do you charge set-up and/or monthly fees? (Get any particular price quotes in writing.)

• What if I cannot afford to pay the fees or make contributions?

• Does the organization contract with consumers or provide a formal written agreement? (Be sure to read everything before signing anything, and request that all verbal promises be written.) 

• Does the organization offer free educational materials?

• Is the organization properly licensed to offer services in your state?

•  What are your counselors' qualifications? Are they certified or accredited by an outside organization? If so, by whom? If not, how are they trained? (Try to choose an organization whose counselors are trained by a non-affiliated party.)

• How are the organization's workers paid? (If employees are compensated more after you enroll in particular services or pay a fee, it's best to look elsewhere.)

• In addition to helping me solve my immediate problem, will you assist me in devising a plan to avoid future problems?

• What guarantee can you give me that my personal information will be kept secure and confidential? Especially my address, phone number, and financial information.

Ask for information about the company. A counseling organization should send you information about it and its services, free of charge. If they don't, it's best to choose a different debt counseling service.

Avoid committing to any program or agreement you are not clear on. Make sure that you understand the rules and fees involved.

Note that "non-profit" status doesn't guarantee that services are no-charge, affordable, or legitimate, cautions the FTC.

Some debt counseling organizations bill exorbitant fees that they may not disclose upfront. Others could urge you to make "voluntary" contributions that can trigger further debt.

What happens next

Once you enlist with a debt counseling service, you will likely have to download and sign a counseling agreement form.

You may need to provide a completed worksheet that indicates your earnings, assets, expenses, and liabilities.

Be prepared to consult with a debt counselor by phone, online, or in person. Your first counseling session may last an hour or longer. Your counselor will inform you of your responsibilities and rights.

The debt counselor will suggest action steps and strategies you can pursue to improve your debt and credit.