What is Credit Counseling? (And Can It Actually Help?)

Credit counseling organizations are typically non-profit organizations that help you learn to manage your finances and deal with debt more effectively.

What is Credit Counseling? (And Can It Actually Help?)
Updated May 13, 2024
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Figuring out how to manage your money can be challenging under the best of circumstances, but it becomes especially difficult when you have a lot of debt.

The good news is there are professionals who can help you — including credit counseling agencies.

These agencies often charge a small monthly fee to assist you with tasks such as budgeting your money and monitoring your credit. They can also work out a debt management plan with creditors, which could simplify your debt payoff process.

Not all credit counselors are created equal, so it's important to research options carefully to find a legitimate credit counseling organization that charges a reasonable fee for high-quality services.

This guide will help you understand more about how credit counseling works and how to find the best credit counseling companies to help you.

In this article

What is credit counseling?

Credit counseling is a service that some organizations provide to help people facing financial struggles. According to the Consumer Financial Protection Bureau, a consumer protection agency, these companies typically perform a wide variety of tasks designed to help you more effectively manage money and cope with debts you owe to lenders.

Credit counseling companies can differ in the specific services they perform, but a debt management plan is often the key focus of what these agencies do for you. These plans allow you to simplify debt repayment by making one monthly payment to the credit counseling agency, which in turn distributes the money to your various creditors.

Typically, a debt management program will not reduce the total balance you owe (debt settlement plans do that). Instead, the credit counseling agency may negotiate with creditors to lower your interest rate, provide a longer payoff time, or reduce fees in order to lower your costs.

If your credit counselor negotiates a debt management plan, you'll pay the credit counseling company, and they'll keep a small monthly fee from it. They’ll distribute the rest of your money in accordance with the agreements with creditors. They may also offer other services to help you ensure these payments are affordable, such as working with you to develop a budget.

How credit counseling companies work

According to the Federal Trade Commission, the majority of "reputable" credit counseling agencies are non-profit organizations. However, the FTC also warns that customers can't assume every non-profit credit counseling agency is a good one as some still charge very high fees or end up making the situation worse.

Outside organizations, such as the National Foundation for Credit Counseling, certify financial counselors and agencies that fulfill certain requirements regarding their training and compliance with quality standards. It can make sense to look for NFCC membership and certified counselors when choosing a service. You can also check the database provided by the U.S. Trustee Program to find counseling agencies that have been approved to provide pre-bankruptcy counseling.

Legitimate agencies may offer counseling sessions online, in person, or via phone — although the FTC recommends working with a company offering in-person services. The agency should be willing to provide free information about its services and fees upfront without requiring you to provide personal identifying information.

After you've found a legitimate consumer credit counseling company, you'll work with your counselor to tackle your debts and hopefully improve your financial situation. You may also gain access to free educational materials designed to help you pay debt off more easily and potentially even improve your credit score so that you might reach future financial goals.

Credit counseling services

Although credit counseling services can differ from one company to another, here are some of the basic things you can expect when you work with a counselor or agency:

  • Creation of a debt management plan: A debt management plan allows you to make one monthly payment to the credit counseling agency, which in turn distributes the money to all your creditors according to payment agreements the agency negotiates. These payment agreements might allow you to reduce your monthly payment if the creditors agree to a longer payoff time, reduced interest rate, or waived fees. Typically, they won't reduce the total amount of debt you must pay over time.
  • Credit report review: Credit counseling agencies often help you to obtain a free copy of your credit report and score so you can keep tabs on how your debt payoff efforts are affecting your credit history. Some agencies will review your report with you so you can better understand the factors affecting your score.
  • Budgeting help: It's common for a counselor or agency to help you make a budget. Budgeting where your money should go could allow you to identify cuts to make so you can ensure debt payoff is affordable.
  • Financial education: Many services offer free financial education, including reading materials and workshops designed to help you learn more about various aspects of money management.
  • Housing counseling: Some credit counselors or agencies assist you in achieving the dream of homeownership by helping you plan to buy a home and qualify for a loan. Agencies can also help current homeowners find ways to remain in their property by making payments more affordable, if necessary.

Remember, not every agency or counselor offers all these services. If a particular service is important to you, make sure you ask what help is available and what fees you'll be charged for that assistance.

What types of debts and issues can a service help with?

Credit counseling services can help consumers with most types of debt, although generally, a debt management plan will include only unsecured debts (for example: personal loans and credit card debt). For secured debt, such as mortgages and auto loans, credit counseling agencies might be able to offer other types of assistance even if you can't include your payment in your debt management plan.

Here are some of the different kinds of debt counseling these companies may be able to assist you with:

  • Credit card debt
  • Student loan debt
  • Medical debt
  • Mortgage debt

Is credit counseling right for you?

If you are far over your head in debt and you need more than just a simplified plan to pay your bills (and perhaps cut your monthly payments a little), then credit counseling isn't going to solve your problems. A debt settlement company or declaring bankruptcy might be a better answer.

If you are comfortable entering into discussions with creditors directly and feel like you could make your own payment agreements, then debt settlement may also not be for you. You may not be able to get quite as good a deal negotiating on your own as an experienced credit counseling service can. But you could save on fees if you do it yourself.

But if you want help making a budget, entering into a repayment plan, or simplifying the process of paying off debt while cutting monthly payments a bit, then credit counseling could be the right fit for your personal finance situation.

How to find a credit counselor

If you're interested in credit counseling, it's crucial to find a counselor or agency you can trust. To make sure the company you are working with is legitimate:

  • Look for a non-profit credit counseling organization that is a member of the National Foundation for Credit Counseling (NFCC)
  • Consider working with an agency in the database provided by the U.S. Trustee Program that has been approved to work with people filing for bankruptcy.
  • Ask about fees and services provided. Walk away if the agency isn't willing to provide this information for free upfront before you provide personal information.
  • Compare the services different counselors have available to make sure they assist with the type(s) of debt you have.

Alternatives to credit counseling

Credit counseling is one of several options available to you if you're struggling with your debt. Others approaches you could take to handling your debt include:

  • Negotiate with creditors: You can develop a repayment agreement on your own. This would allow you to avoid fees, but you'd have to do a lot more legwork.
  • File for bankruptcy: This can be expensive and have long-term financial consequences, but it is sometimes the only way to erase your debt if you owe far more than you can reasonably repay.
  • Debt settlement: You would enter into an agreement with creditors to pay back less than the full balance. You can do this yourself or hire a debt settlement attorney or service to negotiate on your behalf. This can damage your credit but can also result in paying back much less money over time.
  • Work with a credit repair company: These companies generally focus more on rebuilding your credit after you've had past problems rather than specifically dealing with your current debt situation.


What does a credit counselor do?

A credit counselor helps you more effectively manage your debt. The centerpiece of their services is often the negotiation of a debt management plan. Your counselor might get creditors to agree to a longer payoff time, reduced fees, or a modified payment schedule to make repayment more affordable.

You'll generally make one monthly payment to the credit counseling agency, and they will then distribute the funds to different creditors based on the agreements reached. Many credit counselors also offer other services such as assistance with creating a budget and reviewing your credit reports, as well as help with general financial literacy.

Is credit counseling expensive?

Fees for credit counseling can vary from one company to the next. Legitimate companies often charge an affordable monthly fee. They can provide savings in other ways, such as negotiating with your creditors to reduce your interest rate or waive other fees.

What is the difference between debt consolidation and credit counseling?

Debt consolidation typically involves taking out a new loan to repay multiple existing debts. It results in one monthly payment if you pay off all your old debt with your new loan. And if you qualify for a new loan at a lower interest rate, then you can save money on debt payoff. On the other hand, credit counseling involves finding a way to simplify debt repayment by entering into a debt management plan overseen by your counselor.

The debt management plan will often not involve consolidating debt, but instead negotiating repayment agreements with individual creditors. The counseling agency collects your single payment and pays your creditors for you. You may not necessarily pay less over time, and in some cases, could pay more if you stretch out your payoff time and incur credit counseling fees.

Bottom line

Credit counseling can help you to streamline debt payoff, reduce monthly payments, and get in control of your finances. It could also include education about budgeting and how to handle your monthly expenses. But it isn't always the right approach, so consider whether debt consolidation or debt settlement might be a better fit.

If you decide to work with a credit counseling agency, carefully research to find a certified credit counselor with a legitimate agency. They should charge an affordable fee for services that provide meaningful help with your financial management.

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Author Details

Christy Rakoczy

Christy Rakoczy has a Juris Doctorate from UCLA Law School with a focus in Business Law, and a Certificate in Business Marketing with an English Degree from The University of Rochester. As a full-time personal finance writer, she writes about all things money-related but her special areas of focus are credit cards, personal loans, student loans, mortgages, smart debt payoff strategies, and retirement and Social Security. Her work has been featured by USA Today, MSN Money, CNN Money and more, and you can learn more at her LinkedIn profile.