Credit Counseling Can Help You Deal with Your Debt

If you're deep in debt, you may feel like you're all alone. In reality, there are millions of consumers who, despite their best intentions, are in the same boat. Fortunately, there are professional credit counselors who can help you manage your debt and get your finances back on track.

Counselors Offer Help and Hope

Credit counseling is an option for consumers who want to repay their debt (as opposed to filing bankruptcy). The process typically begins with a discussion (in person, by phone, or via mail or the Internet) about your overall financial picture, including how much money you owe and to whom. You will likely discuss how you got into the situation you're in, with the goal of determining how you can avoid the problem in the future. For example, if you got behind on your bill payments because you got laid off, the counselor may encourage you to start building an emergency cash reserve when you're back on your feet.

You'll also go over your options for dealing with your current situation, one of which might be participation in a debt management plan administered by the credit counseling organization. Under a debt management plan, the organization negotiates with your creditors to accept reduced payments, eliminate or reduce finance charges, waive late and over-the-limit fees, and bring your account current. Some creditors do all these things, some do a few of them, and others do none, all depending on their internal policies. You then make one payment to the credit counseling organization each month, which it disburses to your various creditors. (This is not a consolidation loan.)

Different credit counseling organizations have different procedures, guidelines and fees. If you work with an organization that is a member of the nonprofit National Foundation for Credit Counseling (NFCC), counseling is usually free. Participation in a debt management plan may require a nominal set-up fee, but is more commonly limited to an average monthly fee of $14. Why so inexpensive? Because credit counselors don't rely on your fees alone to keep them in business; they receive a large portion of their funding from the creditors they mail payments to each month.

Is Credit Counseling Right for You?

If you're at the end of your rope, a credit counselor can provide the support you need. Participation in a debt management plan can mean you don't have to deal with (or dodge) calls from creditors and you don't have to juggle a stack of bills each month. Some organizations even help you reestablish credit once you've paid off your debt.

Of course, all of this does not come without a cost. Participation in a debt management plan can mean a "black mark" on your credit report because creditors are not receiving payments according to the terms of the original agreement. In reality, this may not be a reason not to participate -- if you're not able to make full and timely payments on your own, then you're going to end up with a mark on your credit report anyway.

For some, a debt management plan feels confining. You may have to live according to a fairly tight budget in order to make the monthly payment, and all your credit accounts (except, in some cases, one) might have to be closed.

And keep in mind that a debt management plan is not a quick fix. It takes many people three to five years to pay off their debt.

Many, if not most, of the counseling agencies that are members of the NFCC go by the name of Consumer Credit Counseling Service. Because there are so many different credit counseling organizations out there (some, members of the NFCC, and some not), be sure to ask about all applicable fees (for counseling and for participation in a debt management plan) before you sign up for services. Understand exactly what you're getting and what it's going to cost you. If you're interested, ask the organization about their education program. Some offices offer free personal finance classes.

Remember, you don't have to deal with bill problems all by yourself. For many consumers drowning in debt, credit counseling is the lifeline that helps them keep their head above water.