How to prepare for a debt relief consultation

This article was paid for by Freedom Debt Relief.

Debt relief companies can help consumers with large unsecured debts negotiate lower balances with their creditors, potentially saving thousands of dollars. However, debt relief (also known as debt settlement) isn't a good fit for every situation.

Before enrolling in any debt relief program, you should be offered a free introductory consultation. During the call, you'll discuss your finances with a trained advisor, who will review the options appropriate to your circumstances and propose a strategy for reducing, settling or consolidating your debt.

Here's how to get the most out of a debt relief consultation.

Before the consultation call, make a list of your debts to guide the conversation and give you and the advisor a clear picture of the support you need.

To identify your outstanding balances, get a copy of your credit reports — either from AnnualCreditReport.com or through apps like Credit Sesame or Credit Karma.

For each debt, note:

• Who holds it? (the original creditor or a collections agency)
• What is the outstanding balance?
• What is the minimum monthly payment?
• What is the interest rate?
• Is it in good standing, delinquent or in default?
• Is it an unsecured (credit cards, personal loans) or secured (mortgage, car payment) debt?

Debt relief companies can only work with unsecured debt.

If you're considering a debt relief company, it's important to vet them carefully. Not all providers are reliable and the industry is vulnerable to scams.

When you have your consultation call, ask these questions to make sure the company is legitimate:

• Is there a charge for the consultation? Your initial consultation should be free.
• Are there upfront fees? A legitimate debt relief company shouldn't charge you until it has performed its service.
• Do I retain access to my money? You should always have oversight of your funds, rather than handing them over to a debt relief company. Freedom Debt Relief clients, for example, deposit money into a special account they still control.
• Do I approve all actions taken by your company? A debt relief company will negotiate with creditors on your behalf, but it shouldn't agree to any settlements without your approval.
• Can I see the status of my debts? There should be full transparency with the program's progress. Freedom Debt Relief's client dashboard is updated with any changes to the status of your debts.
• How much will I be charged? Debt relief companies typically charge a percentage of the balance you enroll. The amount is usually between 15% and 25%, depending on the size of your debt and the state you live in. You might also have to pay fees for the bank account that holds your savings.
• How long will I be in the program? It's common for debt relief programs to take anywhere from 18 to 48 months, depending on the size of your balance.
• What organizations are you accredited with? Accreditation for debt relief companies can come from the nonprofit International Association of Professional Debt Arbitrators and the Association for Consumer Debt Relief, which sets operating and ethical standards.

Debt relief companies typically focus on negotiating a debt settlement plan that reduces your balance and pays off the remainder with a lump sum or through a payment plan. But there are many different approaches to addressing outstanding debt.

During the consultation, you should learn about these alternatives, if any are right for you and whether the company offers them. Be skeptical if a consultant is unwilling to provide information about options outside of the services their company offers.

Debt relief options include:

• Debt forgiveness: A portion of your debt is forgiven in exchange for a lump-sum or payment plan.
• Debt consolidation: A loan with a lower interest rate is used to pay off your debts, allowing you to make payments to a single lender. Some debt relief companies work directly with lenders that offer debt consolidation loans or home equity lines of credit.
• Bankruptcy: You can work with an attorney to petition to discharge debts in bankruptcy court by proving financial hardship.
• Debt validation: Under the Fair Debt Collection Practices Act, you can request proof from a creditor or debt collector that a debt in your name is valid. Success isn't guaranteed, so be wary of a company that requires an upfront fee for validation. 

Not all debts qualify for all kinds of relief, and some creditors won't agree to a proposed plan. The CFPB warns against using a debt relief company that guarantees it can erase or reduce your debt.

While you're enrolled in a debt relief program, you'll typically be asked to deposit funds into a dedicated account that will be used to fund settlements. Depending on the program, you may also need to continue making minimum monthly payments to some creditors.

Before your consultation, review your income and expenses to determine how much you can realistically set aside for debt settlement.

Keep in mind that forgiven debt may be considered taxable income, which could increase your tax bill. There are exceptions, so you may want to discuss your situation with a tax professional.

Debt settlement can also negatively affect your credit score, even if the program is successful. Create a plan for rebuilding your credit once your debts have been settled.

During the consultation call, a good advisor will present you with a variety of options. Your job is to know what you want out of the program: Is your primary goal to reduce your monthly payments, pay off debt faster or settle for less than you currently owe?

Are you just trying to end collection calls or actually find out if bankruptcy is a viable option?

You don't have to go into the call knowing the answer, but having a good understanding of your priorities will help you decide if debt relief is the right choice for you.

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