Negotiating with your creditors can be an excellent way to reduce the overall amount that you owe, increase the period over which you repay your debts, or lower your interest rates. But getting free or low-cost assistance can be tricky. It's often difficult to know where to start, and scammers might offer to "help" you.
In this article, you can learn where to get free or low-cost help in dealing with your creditors, as well as how to avoid debt settlement scams.
Legal Aid Programs and Clinics
Legal aid programs and clinics, which are often staffed by pro bono (volunteer) attorneys, offer legal assistance to low-income individuals and families. Legal aid programs typically provide:
- attorney representation in some individual cases
- do-it-yourself advice on a variety of issues, like how to negotiate settlements with your creditors or help in working out a debt repayment plan, and
- self-help materials (delivered in workshops, over helplines, or online).
If you meet certain criteria, legal aid offices and legal clinics often offer their services for free. You can find a list of various legal aid programs on the Legal Service Corporation's website.
Consumer Credit Counseling Agencies
Consumer credit counseling agencies—which you shouldn’t confuse with debt settlement companies—are often nonprofit organizations that offer help in managing unsecured debts, like credit card and medical debts.
A consumer credit counselor can:
- go over your current financial situation
- help you to come up with a budget that manages your finances, and
- in some cases, develop a personalized plan—called a debt management plan—to deal with your debts, though the agency will likely charge a fee for this service.
How Debt Management Plans Work
A debt management plan is a way to pay down outstanding debt by making a single monthly payment to the credit counseling agency, which it will then distribute to your creditors. In most cases, the credit counselor will not negotiate a reduction in the amounts you owe, but will lower the overall monthly amount you pay by getting the creditors to:
- increase the period over which you repay the debt
- waive fees, and/or
- reduce your interest rates.
The credit counselor will also try to get the creditors to agree not to pursue collection efforts or charge late fees or penalties so long as you are in the debt management program. The cost of this kind of service varies from agency to agency and according to state law, but some organizations provide counseling at no or low cost.
Avoid Certain Credit Counseling Agencies
While many credit counseling agencies are dedicated to helping consumers resolve their money troubles, some charge excessive fees, give bad advice, or don’t perform the services they promise.
Finding a legitimate credit counseling agency. To locate a legitimate credit counseling organization:
- Make sure the company is accredited, usually by the Council on Accreditation (COA) or the International Organization for Standardization (ISO).
- Consider using a Consumer Credit Counseling Service (CCCS) agency, which is a member of the National Foundation for Credit Counseling (NFCC), and is accredited by the COA.
- Ask whether the counselors working for the agency are certified by an independent agency, which means they’ve passed a certification exam that tests for understanding in areas like counseling, budgeting, credit, and consumer law, debt management, and bankruptcy.
- Take a look online to see if past customers have filed complaints filed against the company with your state attorney general’s office, the Better Business Bureau, and local consumer protection agencies.
Warning Signs. If the consumer credit counseling organization that you’re considering using does any of the following things, you should find another agency:
- It pushes a debt management plan as your only option before taking the time to analyze your financial situation fully. While debt management plans work well for some people, they are not appropriate for everyone. You might also consider filing for bankruptcy or trying to settle your debts.
- It charges you a fee for educational materials.
- It requires you to give details about your situation before it will tell you about the company and the services it provides.
- It refuses to help you if you can’t afford to pay for their services.
The Bottom Line
Working with a free legal aid program (if you qualify) or a reputable, low-cost consumer credit counseling organization are two practical options for dealing with your debt. But some credit counseling companies are best avoided. Keep in mind that you can work directly with your creditors on your own for free.
If you don’t qualify for a legal aid program or you prefer that an attorney negotiate with your creditors on your behalf, consider hiring a debt settlement lawyer. (To get information about how to find a lawyer who can help you deal with your debts, see How to Find a Debt Relief Lawyer.) If you want to learn whether filing for bankruptcy is appropriate for your situation, talk to a bankruptcy lawyer.
