Debt Relief Counseling

Debt relief counseling services consolidate your overdue bills into one monthly note that is generally lower than your individual payments would be if you continued to pay them separately. Therefore, debt relief counseling services might lighten your monthly debt load. However, when you elect this debt-eradication alternative, you still need to educate yourself about the drawbacks of this type of arrangement before you agree to pay a company to settle your legally binding contractual obligations for you.

Function

Debt relief counseling agencies work with your creditors to custom-design a reduced payment option for your outstanding bills, such as unpaid loans, credit cards and doctors bills. Under this type of arrangement, you give the debt relief company a predetermined amount each month that the agency distributes to your creditors until all of your consolidated debts are paid in full. Some debt relief counseling services are free. Others charge you a significant fee for their services. However, these fees are usually spread out over the debt relief repayment term, says the U.S. Better Business Bureau's official website, BBB.org.

Benefits

Debt relief counselors usually get your credit cards companies to lower or eliminate the interest on your unpaid balances. They can generally also get your creditors to waive late fees associated with your account. Additionally, some debt relief agency representatives teach you credit-maintenance and budgeting techniques, and help you construct individualized financial plans that might help you improve your financial situation over time.

Drawbacks

Although using a debt relief counseling service might help you pay off your bills, it won't erase your bad credit history. Furthermore, your creditors can still report your consolidation contributions as missed payments if they are less than the original amount due each month, says the BBB.

Requirements

Some debt relief counseling services require that you do not use any of your existing credit cards or apply for any new loans or lines of credit during your debt consolidation program. Furthermore, you probably have to make timely monthly payments for 48 months or longer to remain in a debt counseling program, says the BBB.

Considerations

You should thoroughly investigate potential debt relief counseling agencies before you sign a binding contract. Contact your state Attorney General's office and your state's BBB office to find out if your potential debt relief counseling company has any consumer complaints on file. Also, do not deal with companies that tell you to stop communicating with your creditors or promise that your debts can be paid off for much less than what you owe, says the Federal Trade Commission's Money Matters report. Reputable debt relief counseling companies should send you free information about their business without asking you for any personal information, says the BBB, who adds that you should disregard working with any company who won't promise you confidential counseling services.