Credit Counseling Services: How They Work & How to Choose a Good One

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As helpful as credit counseling services can be during the credit repair process, make sure you know what to expect. What will you get? What will it cost? How will it affect your credit? And how will you find a reputable agency? Get the facts about how credit counseling services work and how to choose a good one.

What is credit counseling?

Credit counseling is a service that helps consumers deal with personal finance issues (e.g., budgeting, debt management, bankruptcy).

What do credit counseling agencies do?

Credit counseling agencies should:

  • Offer you a free initial session
  • Talk to you, in-depth, about your financial situation
  • Direct you to free information and resources
  • Offer you follow-up sessions
  • Help you set up a debt management plan (if appropriate)
  • Try to negotiate lower interest rates/payments to creditors (if you are seeking a debt management plan)
  • Charge you a fee only after providing you services (as agreed, in writing)

Is all credit counseling non-profit?

No. You may see credit counseling services being offered by for-profit companies. However, it is advised that you only work with a non-profit agency. Just keep a couple of things in mind:

  • Non-profit does not mean it will be free (with the exception of the initial session, of course). Though they’re not turning a profit, the agency may still charge a fee to cover the cost of their services (though, in some cases, the fee may be waived).
  • Non-profit does not necessarily mean it is reputable. You still need to do your homework before signing on.

What is the difference between credit counseling and a debt management plan?

Credit counseling refers to the actual counseling sessions. During these sessions, various solutions for your financial situation will be discussed, one of which may be a debt management plan.

Under a debt management plan, you pay the credit counseling service to work out payment plans with your creditors – arrangements that could include reduced interest charges and waived fees. Then, instead of paying your creditors directly, you pay the credit counseling service one lump sum every month and they make your individual payments for you.

Note, debt management plans are usually limited to unsecured debt, like credit cards and medical bills.

Is a debt management plan the same thing as a debt consolidation loan?

No. Under a debt management plan, you are making one payment to the credit counseling agency, which takes that lump sum and splits it up among multiple creditors; they’re making your payments for you. With a debt consolidation loan, you are actually taking out a new loan that you can then use to pay off other loans. Also, while a debt management plan is something you set up with a credit counseling agency, a debt consolidation loan is something you can apply for yourself.

What is the difference between a credit counseling agency and a debt settlement company?

A credit counseling agency is typically non-profit and offers help managing your debt. This may include negotiating a lower interest rate and/or a lower monthly payment, but does not include the lowering of the total balance owed. A debt settlement company is for-profit and tries to negotiate with your creditors for pay-off amounts less than the amount owed (as good as that sounds, debt settlement comes with plenty of potential problems; learn more from the CFPB).

How do you know when to seek credit counseling?

You might need credit counseling if you are:

  • Having trouble making ends meet
  • Unable to put anything toward long- or short-term savings
  • Drowning in debt with no plan for getting out
  • Being hounded by creditors
  • Considering bankruptcy

What information should you be prepared to provide to credit counselors?

The more credit counselors know about your financial situation, the better they will be able to help you. So be prepared to provide them with detailed information about your income, living expenses, and debt. Before your initial consultation, make sure you know exactly how much money you’re bringing in each month, how much is going out, and how much you owe each of your creditors.

Does credit counseling hurt your credit?

Credit counseling in general cannot hurt your credit. The only thing that could lead to credit damage is if you and your counselor decide that it’s best for you to set up a debt management plan or file for bankruptcy. There’s no question that bankruptcy hurts your credit. What’s not so clear is the impact of a debt management plan.

In fact, a debt management plan can hurt your credit for the following reasons:

  • You will likely be required to close the credit card accounts included in your debt management plan. Assuming these cards are maxed out, closing them won’t hurt your credit utilization ratio; it’s already through the roof. But you’ll have fewer open accounts and it may affect your credit mix.
  • Your credit reports will include a notation that you are on a debt management plan. This won’t affect your credit score, but creditors who look at your credit reports will see that you are on this plan (i.e., did not pay your accounts as originally agreed).
  • You are putting your trust in the credit counseling agency to make timely payments for you. If they drop the ball, you could end up with a late payment listing on your credit reports. (That’s why it’s so important to check your statements every month; make sure those payments are getting made on time, as agreed.)

Here’s the thing. If you’re on a debt management plan, you probably already have pretty bad credit. And the last thing you need is more credit to rack up more debt. So, assuming you really do need it, don’t worry how a debt management plan could hurt your credit. Instead, be grateful for how much better your credit is going to get once these debts are paid off.

How long does credit counseling take?

Credit Counseling Services: How They Work & How to Choose a Good One

It depends on your unique financial situation and the action that you and your credit counselor decide on. For example, you may get all the help you need in the free initial consultation. Or you may need to get on a debt management plan; the length of time it takes to complete this typically ranges from 3 to 5 years, but it all depends on how much debt you are in and the amount of your monthly payments.

How much does credit counseling cost?

Any reputable credit counseling agency will offer free services, including:

  • The initial consultation
  • Information and resources
  • Classes or workshops

However, you should expect to pay a credit counseling service for:

  • Setting up and facilitating a debt management plan
  • Bankruptcy counseling to help you through the process of pre- and post-filing

Fees vary, but has a detailed breakdown of ten credit counseling agencies that includes a range of fees you might expect to pay for these services:

Debt management plan

One-time set-up fee: $35-75

Monthly fee: $25-50


Pre-filing bankruptcy counseling: $25-50

Post-filing bankruptcy education: $15-55

Again, these are prices among just ten credit counseling services, so you may see fees outside of these ranges. Plus, fees vary depending on the state you live in and your financial need.

Note, low-income consumers may be entitled to a fee waiver or reduction. As stated by the U.S. Department of Justice, “At a minimum, clients whose household income is less than 150 percent of the poverty level are presumptively entitled to a fee waiver or fee reduction, based on the client’s actual ability to pay.”

What is your responsibility when you are on a debt management plan?

First and foremost, you are responsible for making your monthly payment to the credit counseling service – for the agreed-upon amount, on the agreed-upon day. The credit counseling service then takes the payment and disburses it among the creditors included in the plan.

Beyond that, you should also:

  • Make sure the monthly payment you agree to is one you can afford
  • Continue paying your bills directly to your creditors until you have actually been approved for a debt management plan
  • Contact your creditors after the credit counseling service has told you that you’ve been approved for the plan, just to be certain everyone is on the same page about the terms of the agreement
  • Look over your statements from your creditors carefully, just to be sure your monthly payments are being allocated as agreed (and that fees have been waived as agreed, if applicable)

What should you look for in a credit counseling agency?

Look for a credit counseling agency that:

  • Is non-profit
  • Is certified and accredited
  • Offers in-person counseling
  • Offers a free initial consultation lasting up to 1 hour
  • Offers free information, resources, and classes
  • Has the right answers to all of your questions (see the FTC’s suggested question list)

What should you avoid in a credit counseling agency?

Avoid a credit counseling agency that:

  • Asks for money upfront without providing any free information or resources
  • Doesn’t disclose their fees to you
  • Says they can do things for you that you cannot do for yourself

What is the best way to find a reputable credit counseling service?

To find a reputable credit counseling service, use one or more of the following sources:

  • Financial Counseling Association of America (FCAA)Find an FCAA-member credit counseling service in your state. Results include the agency name and website link.
  • National Foundation for Credit Counseling (NFCC)Find an NFCC-member credit counseling service. Unlike the FCAA, the NFCC results do not turn up a list of agencies for you to choose from. Instead you are given the option of creating a profile to prepare for counseling, having an NFCC agency contact you, or calling an agency yourself. But even if you choose the option to call, you are not given a specific agency name and number, but the main NFCC 800 number. You have to call that and go through a series of prompts to be connected with a member agency.
  • United States Trustee ProgramSearch for approved agencies by state. Results include the name of the agency, address, website, website link, phone number, and whether services are provided in both English and Spanish.

The FTC also suggests checking for credit counseling services offered through universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service.

To check for complaints against the agencies you’re considering, use one of more of the following sources:

  • Better Business BureauSearch by the name and location of the agency. If it is a BBB accredited business, the results will include the date of the accreditation, BBB rating, customer rating (if customers have, in fact, left reviews), and whether the BBB has received any complaints about the business.
  • State Attorney GeneralCheck with your state’s Attorney General to see if they have received any consumer complaints about the agency you are thinking about working with. (And be sure to report any problems to your Attorney General should you have any of your own complaints during or after working with a credit counseling service.)
  • Local consumer protection agencyCheck with local consumer protection agencies about possible complaints against credit counseling services. Results will include the agency name, website link, email, and phone number.

Obviously, you’ll be disappointed if the agency you wanted to work with has complaints against it. That’s why it’s a good idea to have a few contenders on your list.

What is the best credit counseling service?’ shows a detailed breakdown of its top 10 credit counseling services. We’re including eight of them here (omitting two that are not accredited by a professional agency).

  1. ClearPoint Credit Counseling
  2. Springboard
  3. American Consumer Credit Counseling
  4. InCharge Debt Solutions
  5. Take Charge America
  6. American Financial Solutions
  7. Money Management International
  8. Alliance Credit Counseling

Simple Dollar also has a helpful top three (referred to as debt management companies, not to be confused with debt settlement companies):

  1. Cambridge Credit Counseling
  2. GreenPath Debt Solutions
  3. InCharge Debt Solutions

Simple Dollar’s honorable mentions include Apprisen, as well as two other services included in’s top 10 – American Consumer Credit Counseling and ClearPoint Credit Counseling.

Just remember, don’t rely on any one source to tell you the best credit counseling service. Sure, these lists are helpful, but combine them with the resources outlined above – the FCAA, NFCC, United States Trustee Program, BBB, your state Attorney General, and local consumer protection agency.

It may seem like a lot of work, cross-checking agencies among so many sources, but it’s preferable to regretting your choice because you didn’t do your homework first.

What are the alternatives to credit counseling?

Debt settlement companies

As already mentioned, debt settlement companies are for-profit agencies that negotiate directly with your creditors to try and lower what you owe. This arrangement, however, is typically contingent on you paying off the debt in one lump sum, which your budget may not allow. Granted, the company may set it up so that you can make monthly deposits to them until they have the full amount necessary to pay off the creditor. But there are a lot of shady debt settlement companies out there that don’t follow through as agreed and only make consumers’ situations worse.

Do it yourself

Yes, it’s nice to have the help of a professional walking you through budgeting, debt management, and the bankruptcy process. But these are all things you can manage on your own, and we have the tools to help you do it:

Budget Breakthrough: How to Create, Manage, and Tweak This Elusive Tool

How to Handle Debt: Strategies to Save You Money and Improve Your Credit

Bankruptcy 101: What It Really Means and Whether It’s Right for You

That said, provided you do your due diligence in seeking out a reputable credit counseling service, the free initial consultation is worth a try. In fact, the free consultations are a good way to shop around – set up sessions with agencies that made the initial cut, do the free consultation, then pick the agency you like best.

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