Debt counseling is a way for you to deal with your debt. Debt counselors are certified experts in consumer credit and money management issues. Counseling can take place:
- Over the phone
The initial session usually lasts about an hour. A counselor can help you make a personalized budget. Most counseling services also offer free education materials to help you manage your personal finances.
A debt counselor may recommend you enroll in a debt management plan (DMP). Before enrolling, ask if a DMP is right for you. In a DMP, the counseling service will work directly with your creditors to come up with a monthly payment plan that works for you. A DMP requires you to make timely monthly payments. Before agreeing to one, ask your counselor how long it will take to complete. Also, be aware that your access to new credit will be restricted during the DMP.
You need to be cautious when searching for a debt counselor. Most reputable debt counseling services are non-profits. You can begin your search by getting referrals from your financial institution, friends, or family. See if your local university or credit union runs an in-person counseling program.
Before you do business with any debt counseling service, you should check it out with the Better Business Bureau or a local consumer protection agency. If you see a lot of complaints about a company, it is probably not reputable. Also, check with the Illinois Secretary of State Index Bureau and the Department of Financial Institutions to make sure that the service is registered. You may find the Federal Trade Commission’s guide on choosing a credit counselor helpful in making the right decision.
You can avoid scams by asking an organization the right questions. Make sure to get clear answers on the services offered, when you should see results, and how much you will have to pay. Do not deal with a debt counseling service that:
- Advertises complete debt relief
- Claims to remove something from your credit file forever
- Insists you pay fees before it provides services
- Instructs you to give false information on your credit or loan applications
- Refuses to provide free, general information about its services
- Pays its employees based off you signing up for services
- Promises things verbally, without ever stating them in writing
- States that it can create a “new credit identity” for you
- Urges you to make “voluntary” contributions to the organization