Credit Counseling to Reduce Debt

Reducing debt takes discipline when you run up substantial bills. Credit counseling helps with the process when you are unable to come up or follow through with your own plan. Nonprofit counseling organizations do everything from teaching you to stay on track with personal finances to administered a formal repayment plan, according to the Federal Trade Commission website. The counselors work with you to determine which services you need to reduce your debt.

Initial Session

Credit counselors work with their clients online, over the telephone or face to face, the FTC advises. Your initial session involves a discussion of your personal situation. The counselor will need to know how much you owe, your income and monthly obligations. This initial assessment lets the counselor determine and explain the best options for you. Legitimate firms give several options rather than pushing one option, like a debt management plan that includes fees.

Debt Reduction

You might proceed on your own if the credit counselor helps you make a workable debt reduction budget. Otherwise, you can enter into a structured debt management plan that runs for a set term of up to 60 months. The counselor tries to get lenders to remove old late payment fees and sets up a monthly repayment schedule. Your accounts might be "re-aged," according to the FTC, which means past delinquencies are changed to current on your credit reports. You give your funds to the counseling organization every month, and it redistributes the funds for you. The accounts maintain "on time" status if you send the money promptly. Most firms charge an administrative fee that comes out of each payment.

Considerations

The FTC website recommends sending your debt management plan payments promptly and checking your monthly statements carefully to ensure your counseling firm is sending the money to your lenders as agreed. You hurt your credit through late or skipped payments, and your creditors might start reporting your previous delinquencies on the re-aged accounts. You may also rack up late charges that raise your balances.

Choosing a Counselor

Credit counseling organizations commonly have nonprofit status, but this is only one consideration in choosing a firm. The Better Business Bureau website recommends finding several companies through professional groups like the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Ask about the organization's licensing and counselor training and whether it provides personalized advice to each client. Make sure it discloses its fees openly and spells out its services in written contracts. The BBB and your state attorney general can disclose any previous complaints about firms you are considering.