Key takeaways
- Credit counselors help with budgets, debts and options like a debt management plan.
- Most credit counseling organizations are nonprofits, but they may still charge fees. Get prices in writing.
- A first session usually reviews your income, expenses and debts in detail.
- A good counselor explains several options and doesn’t push a single product.
- You can find nonprofit counselors through the NFCC.
If you’re overwhelmed by debt and don’t know where to start, a credit counselor can help you see the whole picture and your options. It’s one of the few forms of debt help that’s often free or low-cost. Here’s what credit counseling is, what to expect, and how to choose a counselor you can trust.
What credit counseling is
According to the CFPB, credit counseling organizations can advise you on your money and debts, help you with a budget, develop debt management plans and offer money management workshops. The CFPB notes that most are nonprofits.
Credit counseling is different from debt settlement. A counselor helps you manage and repay what you owe. A settlement company tries to get creditors to accept less. See debt settlement vs. debt consolidation for how the options compare.
What happens in a session
A first session usually takes about an hour, by phone, video or in person. The counselor will typically:
- Review your income, expenses and debts, so have recent pay stubs, bills and statements ready.
- Help you build a budget, if you don’t have one.
- Explain your options, which may include budgeting changes, talking to your creditors, a debt management plan, or talking to a bankruptcy attorney.
- Give you a written action plan or summary.
You don’t have to sign up for anything at the first session.
What it costs
Many counselors offer a free first session. If you enroll in a debt management plan, there’s often a setup fee and a monthly fee, which vary by agency and by state. The CFPB recommends getting a specific price quote in writing, and warns against organizations that won’t help you because you can’t afford to pay.
Questions to ask a counselor
Based on CFPB and FTC guidance, ask:
- What services do you offer besides a debt management plan?
- Do you offer free educational materials or workshops?
- What are your fees, and can I have them in writing?
- Are your counselors certified, and in what?
- How are your counselors paid? Do they earn more if I sign up for a plan?
- What will you do to keep my information private?
Red flags
- Pushing a debt management plan as your only option before taking real time to review your situation.
- Charging before doing anything. The FTC says good counselors won’t.
- Promising to fix all your problems or to stop all collection calls.
- Pressure to sign up right away.
Our 7 signs a debt relief company is a scam lists more warning signs.
Where to find a counselor
- The NFCC: the National Foundation for Credit Counseling can connect you with a member agency.
- Credit unions, universities and military family support centers sometimes offer low-cost counseling, according to the FTC.
- For bankruptcy: if you’re considering bankruptcy, you must use an approved agency for the required pre-filing counseling.
Does credit counseling hurt your credit?
Talking to a counselor doesn’t affect your credit score. A debt management plan can have some effects, like closed cards raising your utilization, but on-time payments help. See how debt relief affects your credit score.
The bottom line
Credit counseling is a low-cost way to get a clear picture of your debts and an honest list of options. Choose a nonprofit counselor who explains several paths, puts fees in writing and doesn’t pressure you. Before you sign up for any paid program, it’s worth one conversation with a counselor.
Sources: CFPB: what is credit counseling · FTC: how to get out of debt · U.S. Trustee Program: approved credit counseling agencies · NFCC