Your Guide to Credit Counseling Services – Forbes Advisor
Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.
Find out if you qualify for debt relief
Free estimate without obligation
Consumer credit counseling services are designed to help people get their debt under control. If you’re having trouble budgeting and budgeting, or need advice on how to pay off your debt, a certified credit counselor can help.
Almost six in ten people say they have trouble paying off their debts, according to a survey by the National Foundation for Credit Counseling (CNFC). That same survey found that 27% of Americans don’t always pay their bills on time.
When you’re ready to face your debt and get your personal finances back on track, consumer credit counseling can be your best option. Learn more about how credit counseling services work, to help you 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, by instilling better financial habits that you can apply in the future.
How this happens may depend on the type of credit counseling services you require. For example, the NFCC and its member agencies offer these services:
- Debt management plans
- Student loan advice
- Financial coaching for small business owners
- Credit Report Reviews
- Homeownership Advice
- Reverse mortgage advice
- Preventing seizures
- Bankruptcy advice
Credit counselors can also help you develop a realistic budget, if that’s something you’re having trouble with. The solutions offered by credit counseling services can be tailored to your circumstances and needs.
How credit counseling works
Credit counseling is designed to help you create a game plan for managing your finances. This involves a credit counselor looking at your finances and using their expertise to help you create a strategic plan.
The type of help you can get through credit counseling services will vary by agency. NFCC member agencies, for example, can help you:
- Eliminate late fees and over-limit fees
- Stop collection calls
- Lower your interest rates
- Consolidate your bills into one monthly payment
- Pay off debt faster
- Improve Money Habits
Credit counseling is designed to be personal, not unique. So if you are having a credit counselor, you should come away with a plan that is specifically right for you.
How to choose the right credit counselor for you
Credit counseling services are not the same and it is important to do your research before choosing a credit counseling agency. The first thing to consider is whether you should be working with a nonprofit or for profit credit counselor.
Not-for-profit or for-profit credit counseling
Nonprofit credit counselors charge little or no fees for their services. The NFCC certifies nonprofit credit counseling and generally recommends that consumers choose nonprofit credit counseling.
For-profit credit counseling agencies may charge a fee 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 credit counseling fees and want the reassurance that you are working with a reputable company, a nonprofit credit counseling is probably the best solution. With for-profit credit counseling services, you should be aware of the potential for scams.
In addition to weighing the nonprofit issue against the for-profit one, it is 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 the most.
Again, credit counselors can offer help with:
When you compare credit counselors, look at the full range of services offered. This can help you narrow down the list of agencies to those that are best suited to provide the type of solutions you need.
What you can expect from a credit counseling session
If you decide to take credit counseling, you will meet with a credit counselor to discuss your finances. This meeting can take place online or in person, depending on the credit counseling agency you use. 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 may include questions about:
- Your income
- How much debt you have
- Whether you have a budget
- How often you pay bills on time vs. paying late
- Your credit rating
A credit counselor can review your current budget and income, as well as your credit reports and scores. After getting the details of your situation, they will look at the best options.
For example, if you are looking for a nonprofit debt counselor, a credit counselor may first suggest a debt management plan. If that is not possible, they can move on to other, more last resort options, such as 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 advisor can monitor you periodically to see what kind of progress you are making.
How to Get the Most Out of Credit Counseling Services
If you want to use credit counseling services, there are three things that can help you get the most out of your experience:
- Be prepared
- Be transparent
- To be engaged
In terms of preparation, it helps to have some 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 expenses, and a copy of your budget.
Transparency is the key at this stage. Your credit counselor needs all of the details of your situation to make a financial plan. Don’t leave anything out, even if it seems trivial. And answer all questions asked by the credit counselor honestly.
Finally, credit counseling can only work if you are prepared to follow through on the plan you decide to put in place. So, think about your commitment to follow your advisor’s advice to improve your financial situation.
What is a Debt Management Plan?
A debt management plan is a structured debt repayment plan. Nonprofit debt counseling services may suggest a debt management plan, or DMP, as an alternative to debt settlement investigation or filing for bankruptcy.
Here’s how debt management plans typically work with consumer credit counseling:
- You tell your credit counselor about your debts, including owed balances, interest rates and minimum payments
- Your credit counselor is trying to get interest rates reduced and / or fees waived
- You make a one-time payment to the credit counseling agency each month
- The credit counseling agency distributes this payment among your creditors
A debt management plan could be a good solution if you have a lot of credit card debt to pay off. Instead of making multiple payments each month, you will only make one. And you could lower your interest rates or your fees on top of that.
Debt management is not the same as debt consolidation. When you consolidate debt, you take out a loan or a line of credit. You then use that loan or line of credit to pay off the other debts. In the future, you will only be making payments on the debt consolidation loan.
The difference between debt consolidation and debt management plans is that you don’t need to go through credit counseling 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 might be right for you if you want to get your finances back in shape and need help doing it. Even if you are late in paying your bills and debts, a credit counselor can help you make up for it so you can avoid a more serious situation like bankruptcy.
And, if you’re not struggling with debt, a credit counselor can still help you with other things like budgeting or improving your credit score. It may be important for you to increase your score if you have financial goals that include borrowing money, such as buying a car or a house.
If you are looking to get into 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.
Find out if you qualify for debt relief
Free estimate without obligation