Credit Card Debt Counseling and Debt Reduction

Credit card-counseling and debt-reduction agencies assist consumers by offering to construct customized plans designed to reduce or totally eliminate unsecured debt. These agencies may also create a personalized monthly budget to help consumers control unnecessary spending and find ways to save money for emergencies or retirement.

Credit Card Counseling

Credit card-counseling agencies evaluate a consumer's total debt, interest rates and any additional fees incurred, such as for late payment. A consumer is then counseled on how to efficiently pay down his debt over a specified time. Certain credit card-counseling agencies also provide free classes that educate consumers about how credit cards work and how to properly use them.

Debt Reduction Management

Debt-reduction management services work with unsecured-debt creditors to reduce interest rates and eliminate or reverse late-fee charges. A consumer makes one monthly payment to the debt-reduction agency, which then makes monthly payments to the consumer's creditors. A consumer's commitment to a debt-reduction service can extend to several years, depending on the amount of unsecured debt incurred, according to the Federal Trade Commission.

Fees

Credit card-counseling and debt-reduction management services normally charge a fee for their services. Credit card-counseling agencies may charge this fee per appointment but often offer free initial consultations. Debt-reduction management services normally charge a setup fee in addition to monthly service fees.

Expert Insight

The N.Y. Consumer Protection Board recommends that consumers book appointments with multiple credit card-counseling and debt-reduction providers to compare offers and service fees. Consumers should check with the Better Business Bureau and their state attorney general's office to see whether any consumer complaints have been made against the agencies they are considering for debt-reduction counseling services. Consumers may also want to attend free workshops or classes held by credit card-counseling providers to educate themselves before deciding on a service provider.

Warnings

The N.Y. Consumer Protection Board warns consumers to use caution when dealing with debt-reduction counselors who promise that their service can remove negative credit information, such as late-payment notices, from credit reports. Debt-reduction services cannot remove accurate information from a consumer credit report. Consumers should avoid signing a contract during their initial debt-reduction review and should not consider doing business with any counseling agency that pressures them to do so, according to the N.Y. consumer agency.