Your guide to understanding credit counseling

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In a Nutshell

If you’re struggling with credit card debt, credit counseling can help you gain control. Find out more about what credit counseling is so you can determine if it’s right for you.

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Feeling out of control with your credit cards and other forms of debt? You might feel as if you need a little extra help to get things in order.

Here’s the first thing you should know: You’re not alone. Many people aren’t sure where to turn when facing unruly amounts of debt or trouble managing their credit cards. To make matters even more confusing, there’s no shortage of scams that you can get trapped by. The good news? There is legit help out there.

Working with the right credit counseling agency can help you get your situation under control, but there are things you should be aware of first. Read on to learn more about what credit counseling is and things you should consider before getting help.

Looking for credit card debt relief options because of COVID-19? See our resources.

What is credit counseling?

If you feel like you need some additional support to help manage your debt and organize your finances, credit counseling could be a good option for you.

“Typically, credit counseling is a free resource provided by nonprofit financial education organizations. It is a review of your household budget, credit reports and consumer debt with the goal of improving your financial situation,” explains Thomas Nitzsche, communications lead at credit counseling agency Money Management International.

A credit counselor will work with you to help you improve your individual financial situation. Part of that may involve offering tools and resources to help you gain control over your money.

Credit counseling can help consumers navigate a wide variety of situations. According to the National Foundation for Credit Counseling, agencies can provide services such as credit and debt counseling, student loan debt counseling, housing and mortgage counseling, and more.

Is credit counseling right for you?

One of the biggest misconceptions about credit counseling is that you must be in dire straits to benefit from it. That’s simply not true. Credit counseling can be a good resource for anyone who’d like assistance with their credit and financial plans.

“It may be a good idea to contact a credit counseling agency upon receiving your first credit card,” suggests Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency.

“A counselor can assist you with creating a budget and determining exactly how much you can afford to charge based on your available income.”

Sullivan notes that consumers should consider getting in touch with a credit counselor any time they’re having trouble making payments on their accounts. Unfortunately, many people wait until debt collectors are at their door.

Being proactive can do a world of good for your finances. So whether you’re a credit novice looking for financial tips on how to manage your credit or you’re feeling buried under the weight of credit card debt, opting for a free credit counseling session could be useful.

What you need to know about a credit card minimum payment

What should you expect from a credit counseling session?

After you choose a credit counseling organization, the organization will pair you with a credit counselor to get started.

“A credit counseling session typically involves a phone call with a counselor that can last between 20 minutes and an hour,” Sullivan says.

During your credit counseling session, you’ll receive feedback on how to improve your personal situation. A credit counseling session may include …

  • Free budgeting help (beware of organizations — even those with “nonprofit” status — that charge for educational materials and workshops)
  • A free review of your credit report(s)
  • Next steps on how to improve your financial situation
  • Referrals to other tools and resources

Depending on your situation, a credit counselor may suggest a debt management plan, or DMP, which can help you get out of debt faster, typically by lowering your interest rates and setting up a payment schedule. This is typically a last resort, so beware of credit counselors who push this as the first or only option.

Once you have a plan in place, your credit counselor may follow up with you to see how the plan is going. If you need additional assistance, you may be able to schedule another follow-up session, as well.

How to choose the right credit counselor for you

Many companies claim they can help you get out of debt. But there are a slew of scams out there, so it’s crucial to look for a certified credit counselor with a discerning eye.

Here are some things to look for.

  • Make sure the credit counseling organization is accredited by the National Foundation for Credit Counseling.
  • Check with the Better Business Bureau and make sure the organization is in good standing.
  • Ultimately, try to find a counselor you feel comfortable with.

Keep in mind that working with a nonprofit credit counseling organization is not the same as working with a debt-settlement firm.

A debt-settlement firm is typically a private company that works to settle your debt with a creditor. It may charge fees upfront and promise to help you pay off debt. Beware of debt-settlement companies. If you’re unsure of the difference between a debt-settlement company and credit counselor, review this chart by the Consumer Financial Protection Bureau.

Remember that many initial credit counseling sessions are free and only charge a fee if a debt management plan is an appropriate next step.

“If you feel pressured by the representative to stop paying your bills and enter their program, you may have found a for-profit debt-settlement company posing as a credit counselor — so be careful,” says Nitzsche.

What is a debt management plan?

Under a debt management plan, the credit counseling agency works with you and your creditors on a financial plan. You deposit money with the credit counseling organization each month, and the organization uses your deposits to pay your creditors on schedule.

“A consumer having difficulty managing debt may be offered a DMP, which allows the credit counseling agency to make payments on some or all of their accounts,” says Sullivan.

But it’s important to note that a debt management plan isn’t necessarily the same thing as credit counseling — and it’s not the right fit for everyone. Also, unlike many credit counseling sessions, there may be a fee for a DMP.

“There is typically a charge for this service, although the concessions gained and regular payments should still lead to savings for the consumer,” says Sullivan.

The fees will vary depending on the agency, but there’s typically a set-up fee and a monthly fee. For example, GreenPath, a credit counseling agency, currently offers a debt management plan with a set-up cost of up to $50, with an average monthly payment of $36. You may also be eligible for a fee waiver if the cost is too much of a burden for you.

How can you get the most out of credit counseling services?

If you want to get the most out of credit counseling, it pays to do a little work ahead of time.

“Gather all your financial information as it pertains to income, assets, debts and monthly expenses,” advises Nitzsche.

This will help ensure your credit counselor has all the information needed to give you personalized advice for your situation.

On top of that, timing is key. You don’t want to feel rushed or anxious, so set a time that works for you and won’t interfere with other priorities like work and school.

“Schedule 60 to 90 minutes for the process, without distractions,” Nitzsche recommends.

Bottom line

Whether you simply have a few questions or would like extensive help managing your financial situation, a credit counselor can help.

Working with a credit counselor could help you access financial tools and resources to stay in good standing with your credit. Just be sure you’re working with an established nonprofit organization that has your best interests at heart.

Your credit card debt relief options

Everyone’s financial situation looks a little different now because of COVID-19. And if you’re working to manage a heavier credit card debt load right now, you’re certainly not alone.

Seeking credit counseling is a step in the right direction — so congrats on taking that important step. If you’re looking for more resources to help ease your financial burden, check out our list of roundups below.

Whether you’re looking for information on government relief measures, debt relief measures announced by credit card issuers or other issuers, we’ve got you covered.

Relief measures from credit card issuers, auto, mortgage and student loan lenders

Government relief measures

General advice for paying down debt

Looking for general tips on how to budget or navigate your credit card debt? Check out some of our advice articles below.