Negotiating with Creditors and Getting Help: Working with a Credit Counselor

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After you have chosen a credit counseling agency, your assigned credit counselor will spend time becoming familiar with you and your finances. If you meet face to face with the counselor, you should expect your initial meeting to last about an hour, and you should expect to have a couple follow-up meetings. If you get your counseling online, you will exchange information and get your questions answered via email.

Sharing your financial situation

At your first meeting (or soon after), be prepared to provide your counselor with such information as

• Your household budget, if you have one.
• A list of your debts, including whether they are secured or unsecured.
• The amount of money due on each debt every month.
• The interest rate for each debt.
• Which debts you are behind on.
• The assets you own and their approximate market values (meaning how much you could sell them for).
• Copies of your most recent tax returns or pay stubs reflecting your monthly take-home pay.

The counselor uses all this information to prepare a get-out-of-debt plan customized just for you. Not only will the plan provide you with a road map for getting out of debt; it should also help you work toward your financial goals like buying a home, saving for your retirement, helping your children pay for their college educations, and so on.

As part of your plan, the credit counselor may suggest that you enroll in one or more of the agency's money-management seminars and workshops so you can gain the information and tools you need to avoid debt problems in the future and achieve your financial goals. The seminars and workshops may focus on topics like smart budgeting, managing debt, financial goal-setting, and so on. Also, the counselor may give you free money-management materials to read.

Whittling down your debt with a debt-management plan

If your counselor is unable to figure out a way for you to pay off your debts by reducing your expenses and maybe making more money, the counselor may recommend that you participate in a debt-management plan. When you participate in such a plan, the counselor tries to negotiate smaller monthly payments with your creditors.

Getting creditors to buy in

The counselor determines exactly how much you can afford to pay to your unsecured creditors each month in order to eliminate each debt over a three- to five-year period. Then the counselor contacts the creditors to find out if they will agree to let you pay the amounts you can afford. In some instances, the counselor may also ask the creditors for other concessions, such as lowering your interest rates and reducing or waiving any fees you may owe to them.

If your unsecured creditors believe that giving you what you need is their best shot at getting the money you owe, and if they believe you are likely to file for bankruptcy otherwise (which means they may not get a penny from you), they will probably agree to the plan the credit counselor has proposed. However, most large creditors will have a minimum amount that they expect you to pay on your debts each month; unless you commit to paying it, they won't agree to participate in your plan. If some of your creditors refuse to work with you, you have to continue paying them according to the original agreements with them.

Many creditors are willing to offer special concessions to consumers who pay off their debts through a debt-management plan. In return, they expect that consumers will not incur additional debt while they are in their plans.