What is debt counseling?

Debt counseling and credit counseling are pretty much the same thing. Basically what it is, is a program that will help you learn how important creating and managing a budget is, and how to use your budget, or monthly income, wisely so that you do not get in further debt. When you see a debt counselor they will help you come up with a debt management plan that will focus on helping you pay off your debts in a timely manner, and not incur more debts while you are at it.

If you're not disciplined enough to create a workable budget and stick to it, then a debt counseling program could be very beneficial to you. If you are in debt over your head, and can't work out a repayment plan with your creditors, a debt counselor can help you. If you have trouble keeping track of bills, and frequently miss or make late payments, talking to a credit counseling organization would likely benefit you a great deal.

What will a debt counseling organization do for me?

Reputable credit and debt counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. They will have counselors that are certified and trained in the areas of consumer credit, money and debt management, and budgeting. These counselors will discuss your entire financial situation with you, help you develop a personalized plan to solve your money problems and pay off your debts. Typically an initial counseling session lasts an hour, and then you will be offered follow-up sessions.

Things to be aware of:

Many credit counseling organizations are nonprofit and work with you to solve your financial problems without charging you a fortune. It is important to know that non-profit does not mean free, affordable or for real. Some non-profit organizations charge you high fees, some of which are hidden. Others say payment is on a voluntary basis, but then guilt trip you into making large donations. So, it is important that you choose the right credit counseling agency and not be fooled by "non-profit" in the title.

Most credit counselors offer services in any number of ways. They might help you through local offices, the Internet, or on the telephone. It is to your best advantage, and will protect you the most if you find an organization that offers in-person counseling. This way you know they are not a fraudulent organization.

Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs to help consumers be smarter with their money and their debts. So, if you want to try out debt counseling, the first place to look is with your financial institution, or local consumer protection agency. If they do not offer the services, they can usually give you a good recommendation for someone who does.

How to find good debt counseling:

The fact is that people are generally not very good with their money, which is why the average American spends more than they make, and most people are in debt. The problem with this besides being in debt is that it created a market where people can be taken advantage of. People saw the need for debt counseling, and pretty soon thousands of these services could be seen popping up in every city and town. This means that there's no way anyone can track all of them and know which ones are legitimate and actually helpful, and which ones are scams, or pointless. Because it can be hard to find a good debt counseling organization, and it can really hurt your credit, etc. if you should choose a bad one, here are some suggestions that will help weed out the bad:

• Avoid any agency that advertises on television, solicits you by phone or sends you spam. These agencies are usually looking to make money more than to help you with your money problems.
• Look for an agency that is a member of the National Foundation of Credit Counseling (NFCC), a 50-year-old organization with strict accreditation guidelines. If they are not accredited, they are not going to be a legitimate help, and could be a scam.
  
• Visit www.debtadvice.org to find an NFCC affiliate in your area. This is a fast and easy way to find out of the debt counseling agency you are interested in is legitimate.
  
• Don't be misled by agencies that say they are "non-profit." It is a meaningless designation, and should not be used as a measuring stick. Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit, money and debt management, and budgeting. Those organizations that are nonprofit have a legal obligation to provide education and counseling. So, while non-profit means nothing as far as legitimacy goes, you still want to use a non-profit organization.
  
• Don't give your credit card or bank account numbers to any agency over the telephone. You want to meet with someone in person, at their office.
  
• Don't agree to fees of more than $20. Reputable agencies do not keep the first month's payment, demand a contribution or charge high fees. It does not matter what they tell you, do not pay more than that. Some debt counseling organizations charge high fees, not all of which are disclosed, or urge you to make "voluntary" contributions that can cause you to fall deeper into debt. So be conscious of this, and be a smart consumer.
  
• Don't believe anyone who says you can "wipe out" your debt. There are laws against that and it is just not true. Instead they should be helping you create a manageable plan for repaying debt, and work with creditors to lower debts if need be. Many claim that a debt management plan is your only option, and they might even do this before they spend time reviewing your financial situation. Look for an organization that spends time with you, and has a clear picture of your financial situation, and that offers you consumer education and counseling.
  
• If you use a company that offers a debt management plan, you should be aware that there are some companies that deceive and defraud their clients, and so you should check your bills, make sure the organization is fulfilling their promises and making the payments they are supposed to. Be sure to contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your DMP.

Now that you understand some of the cautions of choosing a debt counseling service, let's take a look at what you should do once you are working with one. If you have created a debt management plan, and your creditors have accepted the DMP, it is important to do the following:

• make regular, timely payments.
  
  
• always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
  
  
• contact the organization responsible for your DMP if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.

If payments to your DMP and creditors are not made on time, you could lose the progress you've made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. If you do not stick to the terms of the DMP, the creditors do not have to either. This means that even if the creditors have forgiven late payments that you made before you began the DMP, they might have to re-age them if you are late once you are on it. This will hurt your credit, and will mean you will owe late fees, which could result in it taking longer for you to pay off your debts.

In addition to everything discussed above, be sure to ask your potential debt counseling agencies and organizations the following questions:

What services do you offer?

You want someone with a range of services, including budget counseling, savings and debt management classes.

Are your counselors trained and certified?

Look for organizations with counselors who are trained and certified in consumer credit, money and debt management, and budgeting. If they are they will be more likely to discuss your entire financial situation with you, and help you develop a personalized plan to get out of debt and stay out of debt.

Are you licensed to offer your services in my state?

Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.

Do you offer free information?

Avoid organizations that charge for information about what they do.

Will I have a formal written agreement or contract with you?

Over the phone is always a bad idea, get things in writing, read these documents fully and carefully, ask questions, document answers, and do not sign until you are satisfied that your needs will be met legitimately.

Have other consumers been satisfied with the service that they received?

You want to check references, but in addition to that , check out the debt counseling agencies you are considering with your state Attorney General, local consumer protection agency, and Better Business Bureau.

What are your fees? Are there set-up and/or monthly fees?

You want specifics here. Get it is writing, and ask if every fee is included in that quote. That way you won't get charged hidden fees.

How are your employees paid?

It is important to know if their employees or the organization is paid more if you sign up for certain services, pay a fee, or make a contribution to the organization. If they are, steer clear, that is high pressure, and may result in your getting deeper in debt instead of out of it. If the organization will not disclose what compensation it receives from creditors, or how employees are compensated, go elsewhere for help because it usually means they get a commission for selling you specific products.