Free Debt-Counseling Service Information

Across the nation there are hundreds of agencies that offer debt and credit counseling to help consumers escape a mess of debt. Some of these agencies are reputable, free, nonprofit agencies. Others are scams. Once a consumer finds a good one, he can use the service just to help him figure out a budget and payment plan or employ the service more actively with a debt management plan to help him become debt free.

Recommended Counselors

The Federal Trade Commission and MSN Money both recommend consumers seek credit and debt counseling from a member of either the National Federation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Both organizations have lists of reputable counselors all over the country. Most of these offer their services free or for a low cost and are nonprofit organizations.

Counseling Session

Counseling sessions can take place in person, over the phone, or by email, depending on the agency you choose. They generally take about an hour. Prior to the session, the consumer will need to gather financial documents, such as tax returns, bills and income statements. Counselors may simply help a client set up a budget or, depending on the consumer's needs, may set up a debt management plan.

Debt Management Plan

With a debt management plan, counseling agencies take over management of the client's unsecured debt--such as credit cards--by collecting money from the client each month. Together, they set a projected date for paying off all debt. They often negotiate lower interest rates or payments, or get fees waived with creditors. If a debt management plan is agreed to, they also often take a small fee for managing the debts. They often require clients to destroy their credit cards for the duration of the plan.

Risks

Creditors do not know consumers have consulted a service unless the service takes over debt with a debt management plan. But, because these plans often result in consumers paying somewhat less than their original arrangement would have them pay, contracting with a counseling service can damage credit. According to MSN Money, a third of clients can manage their debt after one counseling session. Two-thirds either can't get a handle on their debt or drop out of the debt management plan.