What Will Debt Counseling Do?

Consumer credit counseling agencies help people find a way out of their overwhelming debt situations. Seek out agencies connected with the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counseling for services, because counselors must be accredited and must offer service regardless of clients' ability to pay, among other reasons. These agencies take information about your income, expenses, debts and spending and devise a plan for tackling debt.

Clarify Your Situation

Consumer credit counselors from reputable agencies are trained to take a holistic view of your finances. They will be able to tell you from vast experience whether you're just needing to tweak your budget, in way over your head, or ready for bankruptcy court. They'll be able to spot some of the areas where you're making mistakes with finances that are creating your problems. And they might be able to pinpoint some underlying issues that you weren't aware of that are contributing to your debt.

Help You Make a Plan

The first counseling session with the agencies connected with AICCCA or NFCC are generally free, either in person or on the phone. With the information you provide, the counselor will help you craft a budget plan complete with a plan to pay down and eradicate your debts. The counselor may propose a much stricter budget than you've been using or suggest ways to negotiate down fees with creditors. She may suggest money saving ideas you hadn't thought of. You should leave with a written analysis of your situation and a plan for going forward.

Debt Management Plan

If your situation warrants, and you agree, you and the counselor will enter into a debt management plan. With a DMP, you pay the counselor a certain amount each month and the counselor pays your unsecured creditors from that pot. Often the counselor will negotiate down fees and interest. You must cut up your credit cards and adhere to a, sometimes rigorous, budget until the debt is paid. For this service, counseling agencies usually charge a fee up to about $50 a month.

Too Late

The U.S. Bankruptcy Court often requires people to have credit counseling before declaring bankruptcy. Usually that's what counselors do. Other times, an addiction, like a gambling problem or alcohol, will make it impossible for credit counselors to help and they may refer the client to social services. Usually a third of clients can handle their own finances after one session; a third enter a DMP, of which almost half drop out; and a third are in too deep, according to information from the National Foundation for Credit Counseling, cited in the Aug. 10, 2009 MSN Money article "Why Credit Counseling Often Fails."