Consumer Debt Counseling Process and Fees

Consumer debt counseling services are easy to find through the Yellow Pages, online and The National Foundation for Credit Counseling (NFCC). Some of these agencies are nonprofit and offer their services for free. Others charge certain fees, ranging from an up-front deposit to a final bill that is based on the time that was spent consolidating your debts.

If you're interested in using a credit counseling service find out right away whether or not you will be charged for the services provided and how the counseling process works. Once you have determined that you'll be able to work with the agency, you can let the agency consolidate your debt.

Consumer Debt Counseling Process

Debt counseling services offer free initial counseling, in which a credit counselor will ask you about your financial situation. He or she will then help you draft a debt repayment plan, outlining what you need to do to clear all of your outstanding balances. If you can't make even the minimum payments they'll offer you a debt management plan (DMP).

Once you enroll in a debt management plan, you require gathering the following details: account number, amount of debt, net income, monthly living costs, names your creditors, proposed amount of repayment and a specific date when creditors can expect their payment.

The counselor then send out proposals to your creditors, on your behalf, with the intention to negotiate lower monthly fees and/or rates of interest. If the creditors agree with the proposal you can start repay your debts. In case there is disagreement from lenders the debt management company will negotiate further until both of you and your creditors reach agreements.

Once the debt management plans are set in motion, you send one monthly installment to the consumer credit counseling service. The firm will then break it down into the payments and send in the arranged amounts to each creditor.

Non Profit Debt Consolidation Fees

If you accept a DMP offer you will be paying a certain fee for the services. These fees can be tax-deductible and will be included in your monthly invoice. Some debt management programs will charge you up to $70 per month -- sometimes plus interest for helping you get out of debt. This means if your plan is to repay $500 per month, then only $430 of that amount will apply to your debts.

Furthermore, if the programs charge interest rates, the interest charges are deducted from the amount. In this case, the firm may only be giving $400 to your creditors, which means you are paying out $100 each month simply for debt servicing.

So before you choose an agency to work with, be careful in evaluating the total costs of any debt consolidation quotes. The consumer debt counseling companies that reveal your total costs are usually good credit counseling services.