Free Consumer Credit Counseling May Come With A "Catch"

Companies offering free consumer credit counseling are probably not lying about the services they offer. But they are probably not telling you the whole truth either.

Let me explain.

Credit counseling, debt management, debt consolidation, debt counseling etc. All of these terms are thrown around by debt help companies hoping to get your business. If you find it all a bit confusing, don't worry, you are not alone. In fact, I sometimes wonder if many of these debt services try and confuse consumers like us on purpose!

For the most part, these terms all refer to the same services, but not exactly. OK, now I'm even confusing myself!

Here's a good way to think about it.

The Two Components Of A Typical Debt Relief Service

Credit/Debt Counseling - The "Free" Part

The first thing a reputable debt relief service will do for you is analyze your current financial situation (your debts, both secured and unsecured, your income, your monthly financial obligations etc.) From there they will offer you some counseling on how to improve your financial situation, including things like budgeting, money management and debt management.

This "first part" is what is being referred to when people talk about free consumer credit counseling. After that, your debt counselor may suggest the second component which is typically not free..

Debt Management Plan - The "Paid" Part

If you have too much debt, and you have trouble making the payments on that debt, your debt counselor may suggest that you consider a debt management plan in addition to free consumer credit counseling.

The goals of such a debt plan are to reduce the amount of money it will take to pay off your debt, reduce the interest rates you are paying on those debts, consolidate your monthly debt payments into one payment, and get you out of debt in 36 to 60 months. Yes, 3-5 years. These are not "miracle programs" that will solve all of your debt problems overnight!

With a debt management plan or "DMP" you deposit money each month with the debt counseling agency and they in turn make the payments to your creditors.

Now, you must understand that these debt relief service providers charge fees for the administration of these DMP's, and that the fees can vary from company to company. Even the "non profit" companies charge a fee. As with anything that you are "purchasing" I would highly recommend that you shop around to not only compare fees, but to also compare exactly what services are being offered.

So Is Free Consumer Credit Counseling A Reality?

The short answer is yes.

But many debt help companies or agencies who offer free consumer credit counseling do so to attract potential clients to enroll in their debt management programs (which is where they make their money). And there is nothing wrong with this unless the company pressures you into a debt management program or worse, refuses to offer the free counseling unless you enroll in their DMP.

Remember, a reputable credit counseling/debt management company will not pressure you into a paid program and should provide you with a free counseling session regardless of whether you enroll in their debt management service or not.