You’re not alone if you feel tired of dodging telephone calls from creditors during dinner: as it is, consumer debt is around $2 trillion. A lot of people are in serious financial trouble, but many want to avoid bankruptcy. So what to do? Among the possible strategies one can take is debt counseling. Such services promise relief for consumers plagued by credit card debt — but do they deliver?
What Is Debt Counseling?
Debt counseling might also be referred to as credit counseling. Basically, the process offers educational resources to consumers on how to avoid and get out of debt. These services help you learn how to deal with your debt situation — the focus is on you and how you would learn how to address your financial issues.
Being in debt is stressful financially, emotionally and even physically when you end up having to work more and more hours just to make a dent in your debt load. Debt counseling provides a way to learn how to manage your debt better in order for you to improve your financial situation. This is opposed to debt consolidation services, where a third party works to address your debt problems. Such services help you to consolidate your debt and may roll your loans into one debt consolidation loan. With debt consolidation, you may be more of a passive participant in solving your debt issues while the service does the negotiating for you.
Back to debt counseling: as more people face unpaid debt, more counseling services have become available. Paid debt counseling services can be found at local financial counseling offices or through online resources. There may be debt counseling options that are available for free based on your circumstances, which may be found at credit unions, military bases, housing authorities such as HUD, universities and the U.S. Cooperative Extension Service. To find reputable debt counseling services, check with your accountant, financial institution, friends, family or a local consumer protection agency.
Note as well that many online sites will advertise both credit counseling and debt consolidation services. So if you’re interested with working with someone, make sure you ask what’s in store for you. The best and cheapest way to deal with debt is to DIY, but for some folks, there may be a need for some counsel.
So Which Debt Counseling Services Are Legitimate?
Those debt counseling services that are legitimate should send you free information about their services before they ask you to disclose any personal financial details. Reputable counselors are certified and trained in debt management, money management, budgeting and consumer credit, and should offer to assist you in these areas as well as provide free educational literature or workshop sessions. I would verify the validity of these services through my local consumer protection agency, the Better Business Bureau and the Attorney General. I also do simple Google searches to see if any scams are attached to a particular debt counseling company.
Debt counselors might suggest several different options. It is typical for them to put you on a debt management program or plan to help you work within your current budget. They’ll have you renegotiate your own debts and perhaps have you learn how to go on your own debt consolidation program.
Are There Free Debt Counseling Services?
Unless a service specifically states in writing that it is free, you can expect to pay for any debt counseling service. A nonprofit debt counseling agency is not necessarily free. They might require a voluntary contribution, upfront fee or monthly fees to help you handle your debts. Make sure to get the specific fee terms in writing before you decide to work with any debt counseling agency.
How I’m Handling My Debt
In my personal situation, I have outstanding credit card debts but I’m still not sure debt counseling is the right answer. I’m going to review the Federal Trade Commission’s “Fiscal Fitness: Choosing A Credit Counselor” to get more information. Once I check out a few companies, I’ll start making calls to see what they can really do for me.
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Great article. I work with MMI for my debt management program. One of the easiest ways to tell if they are a good service or not is to ask if they are a 501(c)(3) non-profit organization. MMI was recommended to me by a friend and I love them. There is a $40 monthly fee, but I don’t care at all. I wouldn’t have been able to negotiate my interest rates to 2% with Chase without a huge impact on my credit score. Going on a DMP has actually improved my credit. It truly was the best decision I made. Bankruptcy was not an option for me due to my income level, but I had to do something with $38k in debt.
I was on a 5-year plan. Now I expect to be paid off in 2.5 years, unless something unexpected happens. It is such a relief not to think about it anymore.
Good luck with your personal situation.
Great information if you are looking for help. It will be interesting to see what your personal experiences are.
Danielle is right. Look for the certified non-profit programs. I spoke to a debt counselor when I first began my own financial reinvention and instead of talking me into spending more money on a service I didn’t need in my particular circumstance, he told me I could probably negotiate with my creditors directly, which I did. My credit cards are all but paid off now and the rest of my debt is on a 2 year payoff plan, without using debt consolidation, at the advice of a credit counselor with integrity.