What they offer. Credit counseling services provide individual budget counseling and assistance in arranging a payment plan with creditors, usually called a debt management plan (DMP). This is a monthly program that often reduces your bills and consolidates them into one monthly payment. When you sign up for the debt management plan, you deposit money each month with the credit counseling service and they pay your creditors according to a payment schedule developed by the counselor. A successful repayment plan requires you to make regular, timely payments, and could take as long as 48 months or longer to complete. As part of the repayment plan, you may have to agree not to apply for or use any additional credit while you're participating in the program. Most credit counselors will ask you to surrender or cut up your credit cards. Cost. The costs are often based on a sliding scale, based on your ability to pay. Typical fees include a start-up fee plus a monthly fee for each month you are in the debt management plan. Wisconsin laws limit the initial budget setup fee to $50 or $25 for clients that sign up for a debt management plan. However monthly fees vary, so you do need to check costs before signing any agreement. Some companies charge a flat monthly fee; others base their monthly fee on the number of accounts in your repayment plan. In Wisconsin the maximum monthly fee cannot exceed 10% of the money sent to creditors or $120, whichever is less. Most credit counseling services are funded, in part, by contributions from creditors, particularly credit card companies. The credit card companies agree to pay a fee to the counseling service equal to a percentage of the payments sent them each month. In the industry, this kickback is known as ?Fair Share Contribution? and is limited to 15 percent in Wisconsin.

Since credit card companies largely finance these services, the debt repayment plans usually cover only unsecured debt. Secured debt?like your auto and home loans?may not be included. You must continue to make payments to these creditors directly. In many cases, a person who has debt problems has gotten into that situation involuntarily, due to a job loss, high medical expenses or other circumstances beyond their control. Often their debt load exceeds their monthly income. The advice to give a person with debt problems is different in each case. Sometimes filing for bankruptcy may be the best option; however credit counseling services are less likely to suggest this option. Also, in these difficult situations, first priority must be given to the necessities of life?shelter, food, and transportation. Therefore it is usually essential to insure that payments required to maintainthese necessities?housing and vehicle payments?are made on time and in full. That may mean that some creditors, like credit card companies, are not paid for several months. Impact of credit history. A debt management repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments may have been late or missed altogether, or that there are write-offs or other concessions. However, a demonstrated pattern of timely payments may help you obtain credit in the future. Choosing a counseling service. With an explosion in the number of credit and debt counseling agencies today, it?s not surprising that consumers are sometimes confused about their options. It can be difficult to distinguish between organizations providing a high level of service and education, and those that operate more like collection agencies for creditors by pushing consumers into repayment plans. The services that the counseling agencies provide vary widely. Some are much better than others, so choose carefully. Don?t work with a counseling agency if you feel pressured or uncomfortable. You want a counseling agency that will help you successfully conquer your bills?not get you deeper in debt. Any reputable credit counseling agency should provide you with free information about itself and the services it provides without requiring you to provide any details or your situation. If not, consider that a red flag and go elsewhere for help.