How does debt counseling work?

Debt counseling is a process in which a professional debt counselor works with individuals who have debt to formulate a plan to repay that debt. This process, when done with a professional agency or attorney can result in paying less than what you owe in total as well as paying less per month. The goal of this plan, though, is to pay off the debt within a period of three to five years, in most cases.

How It Works

You work with a debt counselor. The debt counselor works with you to determine what amount of money you have left over from paying expenses each month. This means creating a budget. Then, the following occurs.

• The debt counselor contacts each of your creditors to try and work down the amount of money owed and to determine how much the lender will take per month on the account to pay it off in a specific period of time.
• The counselor may be able to get no or a reduced interest rate and a frozen account for you, so as to help you to pay it off faster.
• You make payments to the debt counselor each month. Those funds are paid to the creditors by the agency. You continue to make payments until the debt is paid off.

In any situation in which you will pay off less than what is owed on the debt, the debt counseling agency or attorney will ensure you are no longer legally required to pay that amount off. You are required to continue with the program until the debt is repaid or the creditor may require payment in full.