 TITLE: How Does Debt Counseling Work? CONTENT: What Is Debt Counseling?\n------------------------\nDebt counseling, also called credit counseling, involves working with a professional who helps you assess your financial situation and work out practical solutions for improving your financial health, including paying down or paying off debt. Among the items a debt counselor can help you with:\n*   Objective feedback on your finances—income, expenses and debt.\n*   Actionable suggestions for making things better, for example by finding ways to bring in more income or reorganize your expenses.\n*   A better understanding of your debt, including your rights and responsibilities as a borrower.\n*   Devising a strategy to tackle your debts and improve your financial health.\n*   Establishing a debt management plan that keeps you on track month by month.\nHere's how debt counseling works: If you decide to work with a debt counseling agency, you'll sign an agreement and provide information on your finances. A credit counselor will contact you—often by phone—to talk about your concerns and objectives and discuss ideas for addressing your finances. As part of this service, your counselor may create an action plan for you.\nYou may also decide to work with your counselor to establish a debt management plan. This is an ongoing agreement that typically includes a small upfront fee and an ongoing monthly fee. With this arrangement, you make one monthly payment to the debt counseling service; they, in turn, make monthly payments to your creditors. By communicating with your creditors and taking your whole financial picture into account, debt counselors may be able to help you devise a plan to pay off your debts in three to five years.\nDebt counseling is not the same thing as debt settlement. Debt settlement companies attempt to negotiate reduced payments with your lenders, generally in exchange for a fee. In a debt settlement arrangement, you may indeed pay less than the full amount of your debt. The hitch is that you'll typically be asked to stop making payments on your debt, which will cause late payments to appear on your credit report and seriously damage your credit. If the settlement process is successful, the account will appear as \"settled for less than originally agreed\" on your credit report, which can also result in credit score harm. Late payments and settled accounts stay on your report and affect your credit score for up to seven years. It's best to avoid debt settlement in all cases unless bankruptcy is your only other option. END