Credit Counseling

Credit counseling is a service that educates and guides consumers that are buried in debt and who are trying to gain control of their finances.

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Credit counseling is designed to help avoid bankruptcy and escape living paycheck-to-paycheck by offering advice on budgeting and other basics of finance. It also is helpful for people unsure of how to approach their creditors about a settlement, or a payment plan and would like help with that process.

Certified Financial Counselors educate consumers on the root cause of debt. They provide tools that help people avoid past-due mortgage payments, maxed-out credit cards and dormant savings accounts.

The solutions to difficulties vary because the situation each consumer presents is different. Many counselors will suggest Debt Management Plans (DMP), while others may point you to Debt Consolidation, debt settlement or bankruptcy.

It all depends on the circumstances of your situation and the resources you have available to eliminate debt.

What Happens in A Credit Counseling Session?

Credit counseling is done in-person at a home or office, over the phone or online. Counselors conduct 30–40 minute interviews to gather information about a person’s financial situation. They will ask questions about income, expenses, budgets and assets. It is best to have this information documented and available when you begin the process.

Counselors also will ask questions about the circumstances that caused financial problems, steps taken to address the debt, cash flow available every month and any assets that could be used in solving the problem.

The counselors are trained experts at evaluating the data, educating clients on available options and designing money management programs that help eliminate debt and stress.

Every solution is customized to suit the consumer’s resources and needs. Help is available for making budgets, managing money and using credit to your advantage. The goal is the same for every client: eliminate debt.

Credit Counseling Session

Selecting A Credit Counseling Agency

Finding a reputable credit counseling agency is similar to many important shopping ventures: know what you want, seek recommendations from friends who have used the service, and do research online to find out more about the company’s practices and history.

As you research companies, there are some standard questions they should answer that will help you identify if they’re the right organization for you.

Some of things worth considering:

  • Is the agency licensed in your state and accredited? - Members of the National Foundation for Credit Counseling (NFCC) adhere to strict standards and regular audits for data security, counselor accreditation and customer service.
  • Be certain the counselors are certified, preferably by the NFCC. - Also, how does the agency pay its counselors? Be wary of counselors paid on commission.
  • Does the agency offer educational workshops and reading materials?
  • Ask for a contract. - Get everything — fees, services, time in the program — in writing.
  • Ask what happens if you can’t afford the fees or miss a payment?
  • What steps does the agency take to prevent identity theft?
  • Contact the state attorney general or Better Business Bureau for records of complaints and how the agency responded to complaints.

For-Profit vs. Non-Profit Credit Counseling

The Federal Trade Commission and the NFCC suggest you work with legitimate non-profit credit counseling organizations. The non-profit agencies offer counseling for free or at a minimal charge.

The NFCC, which certifies Financial Counselors and companies, has approved 83 non-profit agencies in the United States. On the other hand, there are no for-profit companies that are accredited by the NFCC.

Financial counselors for non-profits operate under strict state and organizational guidelines to insure they act in their client’s best interests. Non-profits are frequently audited by states.

Non-profits must demonstrate that they are acting in the best interests of all of their clients. Some non-profits offer clients monthly newsletters with money-saving tips and stories of people who have gotten out of debt. They do community workshops and provide financial calculators that allow people to track their progress at eliminating debt.

Counselors at for-profit agencies often have incentives to sell company products and services. They may receive bonuses based on how many people they sign up for fee-originating programs. These programs may or may not suit your needs.

Dealing with a non-profit does not guarantee legitimacy, but it is a step in that direction.

Results from Credit Counseling

Data from the National Foundation for Credit Counseling showed that member agencies counseled 1.3 million consumers in 2014. The agencies reported that nearly 70% of those enrolled in debt management plans had either paid off or were paying off their debt in a 4–5 year window.

The NFCC also started its own credit counseling program called “Sharpen Your Financial Focus” to help people learn how to manage their money more effectively. Ohio State University surveyed participants in the program and found 67% say it helped them manage their money better and 73% said they are paying their debt more consistently.

Over a year and half, the average participant’s credit score improved 20 points and revolving debt dropped from more than $12,000 to just over $5,000.

The purpose of credit counseling is to put consumers in control of their finances and avoid bankruptcy.

If the consumer chooses to participate in debt management programs, debt settlement or debt consolidation, it is wise to allow a 3- to 5-year window to complete the program and eliminate debt.

If you expect it to take longer than that to settle your debt, it may be wise to file bankruptcy.

Asking for credit counseling has no effect on your credit score. However, participating in one of the programs offered by credit counseling agencies to pay off your debt will have an effect — and it’s not always negative.

Lenders can make a note in your credit history that their account is being paid through a DMP, which won’t affect your score as long as the account is up to date and it gets paid in full.

If you choose debt settlement, the lender will report the debt as settled for less what was owed and that almost always has a negative impact on your credit score.

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Staff Writer

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at


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