Debt Program Advice

Struggling to pay your debts can be stressful, and companies offering debt-management services may appear to be a source of debt relief. Such services can benefit some people, but they also create more debt due to the fees the companies charge. Determine whether the potential debt relief is worth the cost before you hire a company to manage your debts.

Debt Management

Get a clear picture of your debt situation before deciding to pay a debt-management company a fee to help you consolidate, settle or reduce your debts. You may find you can work out your own debt-management and repayment plan simply by creating and sticking to a household budget. CNN Money, MSN Money and other financial websites provide free budget and debt calculators to help you create a money-management plan. Those calculators can help you determine how long it will take you to reduce or eliminate debts based on various monthly payment amounts. You also could earn extra money through a part-time job or use a tax refund to pay down debts quicker.

Debt Consolidation

Companies that advertise debt-consolidation services often tout that they can negotiate with creditors to reduce balances and interest rates. People who use such services are usually required to make one monthly payment to the debt-consolidation company, and that money is distributed to your creditors. However, the debt consolidator's fees could amount to 10 percent of your monthly payment. Determine your actual savings before agreeing to work with a debt-consolidation company. Much of what the company saves you by reducing what you owe your creditors may be paid out in fees to the company.

Debt Settlement

People seeking to avoid filing for bankruptcy may work with a debt-settlement company to reduce their debts to as little as half of what they owe their creditors. According to a Smart Money article titled "Debt Settlement: A Costly Escape," fees in the debt-settlement industry are difficult to pinpoint. Some companies charge fees ranging from 18 to 25 percent of the total amount of debt they handle for a client. Contact your creditors and try to negotiate your own debt settlements before hiring a company to do it for you. Some creditors will settle with customers who are 60 days or more behind on their payments. However, be careful not to promise a creditor you'll settle your account for more than you can afford to pay.

Credit Couseling

Some people turn to credit-counseling services when they aren't able to work out a debt-repayment plan with their creditors. Nonprofit organizations around the nation offer free or low-cost credit counseling. Nonetheless, the U.S. Federal Trade Commission (FTC) warns consumers that some of those organizations aren't legitimate and others charge high fees. The FTC recommends checking with your state's consumer protection agency for referrals on credit-counseling services. People struggling to pay their bills can enroll in a credit-counseling agency's debt-management program in which counselors negotiate with creditors to create a more affordable repayment plan.