Your Guide To Credit Counseling Services (2024)

Consumer credit counseling services are designed to help people get their debt under control. If you’re having trouble making and sticking to a budget, or you need advice on how to pay off debt, a certified credit counselor could help.

Nearly six in 10 people say they struggle with paying down debt, according to a survey conducted by the National Foundation for Credit Counseling (NFCC). That same survey found that 27% of Americans don’t always pay their bills on time.

When you’re ready to tackle your debt and get your personal finances back on track, consumer credit counseling may be your best option. Learn more about how credit counseling services work, to help decide if credit counseling is right for you.

What Is Credit Counseling?

Credit counseling is a process in which you work with a credit counselor to develop a plan for managing your finances. The end goal is to improve your financial situation, supported by instilling better financial habits you can apply in the future.

How that happens can depend on what type of credit counseling services you need. For example, the NFCC and its member agencies offer these services:

• Debt management plans
• Student loan counseling
• Financial coaching for small business owners
• Credit report reviews
• Homeownership counseling
• Reverse mortgage counseling
• Foreclosure prevention
• Bankruptcy counseling

Credit counselors can also help you to develop a realistic budget, if that’s something you’re struggling with. The solutions offered through credit counseling services can be tailored to your situation and needs.

How Credit Counseling Works

Credit counseling is designed to help you create a game plan for managing your finances. This involves having a credit counselor look over your finances and use their expertise to help you create a strategic plan.

The kind of help you can get through credit counseling services will vary, depending on the agency. The member agencies of the NFCC, for example, can help you:

• Eliminate late fees and over limit charges
• Stop collection calls
• Lower your interest rates
• Consolidate bills into a single monthly payment
• Pay off debt faster
• Improve money habits

Credit counseling is designed to be personal, not one size fits all. So, if you’re meeting with a credit counselor, you should be walking away with a plan that fits you specifically.

How to Choose the Right Credit Counselor for You

Credit counseling services aren’t identical, and it’s important to do some research beforehand when choosing a credit counseling agency. The first thing to consider is whether you should work with a nonprofit or for-profit credit counselor.

Nonprofit vs. For-Profit Credit Counseling

Nonprofit credit counselors charge no or minimal fees for their services. The NFCC certifies nonprofit credit counselors and typically recommends that consumers choose nonprofit credit counseling.

For-profit credit counseling agencies can charge fees for their services. Examples of for-profit credit counseling include debt settlement companies, debt relief companies and companies that offer credit repair services.

If you don’t want to pay fees for credit counseling and you want reassurance that you’re working with a reputable company, a nonprofit credit counselor is likely the better fit. With for-profit credit counseling services, you have to be aware of the potential for scams.

Services Offered

Aside from weighing the nonprofit versus for-profit question, it’s also important to consider the range of services offered by a credit counseling agency. This is where it helps to understand what you need help with most.

Again, credit counseling can offer assistance with:

• Budgeting
• Debt management and payment
• Helping you break the paycheck to paycheck cycle
• Improving credit scores
• Avoiding bankruptcy
• Developing positive money habits

As you compare credit counselors, look at the full range of services offered. This can help you narrow down the list of agencies to ones that are best suited to providing the kind of solutions you need.

What You Can Expect From a Credit Counseling Session

If you decide to pursue credit counseling, you’ll meet with a credit counselor to discuss your finances. This meeting can take place either online or in person, depending on which credit counseling agency you’re using. Credit counseling sessions typically last 30 minutes to an hour.

During the meeting, your credit counselor will ask you questions about your finances and what you need help with. This can include questions about:

• Your income
• How much debt you have
• Whether you have a budget
• How often you pay bills on time versus paying late
• Your credit score

A credit counselor may review your current budget and income, as well as your credit reports and scores. After getting the details of your situation, they’ll consider what options may be best.

For example, if you’re seeking out nonprofit debt counseling, a credit counselor may suggest a debt management plan first. If that’s not feasible, they may move on to other, more last resort, options like pursuing debt settlement or declaring bankruptcy.

Once you and your credit counselor agree on a solution, it’s up to you to implement it. And your counselor may follow up with you periodically to see what kind of progress you’re making.

How to Get the Most From Credit Counseling Services

If you’re interested in using credit counseling services, three things can help you get the most out of your experience:

• Being prepared
• Being transparent
• Being committed

In terms of preparation, it’s helpful to have certain information organized and ready to share when it’s time to meet with your credit counselor. This includes a list of your debts, estimates of your monthly spending and a copy of your budget.

Transparency is key at this step. Your credit counselor needs the full details of your situation to come up with a financial plan. Don’t leave anything out, even if it seems trivial. And answer any questions the credit counselor asks honestly.

Finally, credit counseling can only work if you’re prepared to follow through on whatever plan you decide to put in place. So, consider how committed you are to following your counselor’s advice to improve your financial situation.

What Is a Debt Management Plan?

A debt management plan is a structured plan for repaying debt. Nonprofit debt counseling services may suggest a debt management plan, or DMP, as an alternative to investigating debt settlement or filing for bankruptcy.

Here’s how debt management plans generally work with consumer credit counseling:

• You tell your credit counselor about your debts, including balances owed, interest rates and minimum payments
• Your credit counselor attempts to get interest rates reduced and/or fees waived
• You make a single payment to the credit counseling agency each month
• The credit counseling agency distributes that payment among your creditors

A debt management plan could be a good fit if you have multiple credit card debts to pay off. Instead of making multiple payments each month, you’d just make one. And you could reduce your interest rates or fees in the bargain.

Debt management is not the same as debt consolidation. When you consolidate debts, you take out a loan or line of credit. You then use that loan or line of credit to pay off the other debts. Going forward, you’ll just make payments on the debt consolidation loan.

The difference between debt consolidation and debt management plans is that you don’t need to go through a credit counselor to consolidate your debt. You can apply for debt consolidation loans online and use the proceeds to pay off the balances yourself. But a debt management plan could result in a lower interest rate and fewer fees, depending on what your credit counselor is able to negotiate with your creditors.

Is Credit Counseling Right for You?

Credit counseling services could be right for you if you want to get your finances in shape, and you need some help to do so. Even if you’re behind on bills and debt payments, a credit counselor may be able to help you get caught up so you can avoid a more serious situation like bankruptcy.

And, if you’re not struggling with debt, a credit counselor could still help with other things like budgeting or improving your credit score. Boosting your score may be important to you if you have financial goals that include borrowing money, such as buying a car or a home.

If you want to get started with credit counseling, the NFCC is a good place to start. You can learn more about the credit counseling services offered and find an accredited nonprofit credit counselor near you.