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Credit Counseling: Payoff Debts Faster & Easier

Elizabeth Johnson

Financial Advisor
Updated: 07/2019

Credit Counseling

In This Article

How to Find a Good Credit Counseling Company

Credit counseling is the procedure of getting certified guidance that helps you assess finances and the ways in which you can garner lower interest rates from lenders. Credit counseling also helps you identify the debt relief programs you should apply for in order to optimize your loan and monthly payments.

It usually entails discussions on a counseled budget with professional advice on ways to save money in each budget category in a customized manner. Moreover, according to your specific needs, credit counseling helps you chart out an action plan with regard to all the debt solutions available to you. Through this, you can also see your current credit report listing that details your debts, monthly payments, and credit score.

To make things easier, credit counseling doesn’t necessarily have to mean meeting a counselor in person and discussing your financial situation in detail with him. The procedure can also be carried out online. In online credit counseling services, you simply have to enter basic information related to your finances, and in return, you will receive a personalized solution on the screen.

Also, you don’t have to be in deep debt to avail credit counseling. It would do well to set up such counseling sessions early on when your debt has not yet skyrocketed. In some companies, there is no minimum debt requirement before you can speak to a counselor.

The overall aim of credit counseling is to be able to create a payment plan which is affordable and through which you can pay off your debt within a period of five years. Personalized financial counselors can take anywhere between 20 and 40 minutes to interview you thoroughly, gather information, understand your financial situation, and come up with a customized solution.

If you are looking for some debt relief solutions, credit counseling is a safe and practical approach to the problem.

How much does credit counseling cost?

In case of non-profit organizations, credit counseling is usually a free service as companies offering that receive funding from a number of non-profit programs that pay for professional counselors. Some companies that can’t provide free guidance may charge a small fee for the same. Several debt solution companies will arrange a counseling session for you with a certified counselor at no charge.

However, if after the counseling session, you choose to go for the debt management solution provided by the said company, you will have to pay a small setup fee for availing the service. These charges can also be levied on a monthly basis, but rest assured, it is nothing too extravagant.

First, you will have to qualify for the debt management program which is based on your financial management capabilities. If you are going to select the online credit counseling option, you can choose a payment due date, set up automated payments, and add credit accounts without even having to speak with a professional.

What effect does credit counseling have on credit score?

A credit score is a number between 300 and 850 through which money lenders and banks rate your creditworthiness. A credit score of 700 and above is unanimously considered as good while a credit score below 700 somewhat hints at your incapability to be under a healthy debt. This helps organizations weed out defaulters.

A credit score is calculated by analyzing a person’s credit file and bank statements, which in turn determines the specifications of your loan. The same loan can be offered at a lower rate of interest to someone with a good credit score and at a comparatively higher interest rate to someone who is in the range of 400-500. Please keep in mind that different lenders have different standards for rating credit scores.

Your credit score will never be directly related to your decision of participating in credit counseling. The credit report card does not reflect your credit counseling details in any manner. However, your decision to participate in a debt management program can affect your rating in a positive way and increase your credit score. This happens because choosing a debt solution can directly impact your financial behavior. But be fairly warned, the process is not as linear as it seems.

For example, if you are in heavy debt, a debt management solution might suggest you to close your credit cards so that you can avoid buying things you don’t have money for and stop defaulting. This may bring down your credit score for a little while.

But with time, as you start making payments on time, even if in small tranches, and come completely out of your debt in a couple of years, your credit score can start looking better. According to the National Foundation of Credit Counseling (NFCC), people who participate in credit counseling see an average increase of 50 points in their credit scores within a time span of 18 months. This is also applicable to the people who were in the bottom-most spectrum of credit rating.

And ultimately, a higher credit score can end up making you a very attractive borrower. People with good credit rating have little to no difficulty securing a loan for a house or a car. In this way, credit counseling can indirectly affect your credit score in the long run.

What are the advantages of consumer credit counseling?

For the people who still haven’t heard about this concept as much, there are several factors that might influence you to give credit counseling a shot.

  • If you are opening a window for a non-profit counseling company, the chances are that your credit counseling will be entirely free of any charges. There is no loophole or a hidden agenda in it. You can simply book an appointment with a counselor who will try his best to make sense of your increasing debt line. You will not be sold anything you don’t want.
  • When you are knee-deep in debt, sometimes it really helps to get an impartial and professional financial advice from a third party.
  • In case a debt management solution fits your requirements, it’s a win-win. Opting for such programs can make you eligible for a lower rate of interest and you might just end up with a permanent solution to your financial woes.
  • If you don’t want to go for a debt relief program, you still benefit from all the financial advice on how you can keep your expenditure under control and budget your expenses. This can include saving tips for items ranging from utilities to your cell phone.

Further, here is some data by the NFCC that will prove that opting for credit counseling can be advantageous for the customer. The survey was taken three months after professional help was imparted to the individuals in need.

  • Overall, people reported that credit counseling sessions have helped them improve their financial habits and confidence regarding crucial money matters.
  • 73% of clients said that credit counseling has made them pay off their debts more consistently. This was made possible after they were able to get a steady grip on their outgoing finances and life-hack their way through essential expenditure.
  • 68% of clients said that credit counseling had led them to set legitimate financial goals for their future and to better plan out their income versus their expenses.
  • 67% of clients asserted that after undergoing credit counseling, they were able to consolidate debts and better manage their money.

Should you sign up for credit counseling?

Credit counseling is definitely for you if you feel overwhelmed by the debt you have and want to get your financial health back on track. Many Americans often struggle to make ends meet, and paying off debt. Discussing your finances and getting a workable and action-oriented plan that will help regain control of your finances. Plus, you would also gain a better financial understanding, this minimizing the possibility of you committing the same mistakes again.

Moreover, if you want to renegotiate your interest rates or talk to your creditor about a payment plan or a settlement, you may also benefit from credit counseling. This process can be tedious, and you may just be able to land a better deal if your creditors know for sure that you have received professional financial advice and are set on becoming debt-free.

However, this is not for people who have no problem paying their credit card debts on time. There simply is no need for such service in this case. Also, you must take into account that the proper mindset is half the work so if you are unwilling to change some habits, you might as well not sign up for credit counseling.

Things to remember after getting credit counseling

After credit counseling, you would be given options on how you can better manage your debt. Coupled with following your counselor’s financial advice, you can become debt-free after the program, but you need to remember these things:

Patience is the key

Did you get into a deep hole of debt overnight? Unless you spent lavishly for one night, the answer is probably no. Therefore, you should not expect to get out of the same debt so quickly. Just continue to make the manageable regular payments, and after a few years, you would be an attractable lender to your creditors. You must be willing to devote these years to clearing your debt because if you’re not, you might as well file for bankruptcy.

Stick to the plan

Through financial advice, your counselor will help you efficiently manage not only your debt but also your everyday expenses. This will require you to get rid of a few habits like shopping, eating out, and the likes. The plan they will detail to you will work, but this will only happen if you follow the plan religiously. Else, you only have yourself to blame.

Control your spending

This does not just mean not buying that cool new thing on sale and rising above your spending urges. Part of controlling your spending, of course depending on your case, is purchasing a cheaper cheese, skipping the movies to watch DVDs, or even taking the bus instead of driving to work. When following the plan, you don’t have to follow it to the letter. Just in case of emergency, you would do well by spending a smaller amount than what your counselor has approved.

How do you pick a credit counseling company?

It is advised that you press the button for a non-profit company that provides all types of credit counseling. This can be in-person, over-the-phone or online. Please keep in mind that not all non-profit companies offer free credit counseling services and you are suggested to conduct a thorough research before zeroing down on one company. For this purpose, you can take into account a couple of factors. The company should be:

  • Licensed and accredited by the NFCC. This ensures that the company has undergone regular audits and follows strict organizational standards.
  • Certified by the Council on Accreditation (CoA).
  • Preferably a non-profit agency with a policy framework on free financial literacy education
  • Low on customer complaints. To assure this, you can track its complaints and how the company has responded to them by contacting your state attorney general.

A profound credit counselor will first assess the entire situation based on your documents. These will include information about your assets, income, and expenditure.

Once the basics are clear, he will discuss and review your debts with you with the help of your credit report. And according to his expertise and based on your preferences, he will then suggest a debt relief program to you whose final aim is to make you debt-free. For that purpose, the program’s recommendations can range from bankruptcy to reducing your purchasing power to simply laying off of certain items that are out of your budget.

Furthermore, these counselors are certified by the NFCC and are liable to keep all your personal information completely confidential. They are fully trained in budgeting, consumer rights, and collections and debt management.

FAQ

Credit Counseling Basics

In this section, you will find the most frequently asked questions that tackle the basics about credit counseling. If you are new to credit counseling, you will find useful information to get you started.

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What is credit card counseling?
Credit card counseling is a type of debt relief that is dedicated to credit card debt. It is a type of counseling service that provides strategic approach on credit card debts.
How do you qualify for credit counseling?
Anyone with an overwhelming amount of debt or those who struggle to meet their monthly payment on their debts qualifies for credit counseling. Those who want to file for bankruptcy are also required to undergo credit counseling.
Is credit counseling a good idea?
If you can find non-profit credit counseling services, it is a good idea because you can manage your debt better (especially if you are overwhelmed). This is especially true if you were not approved for a debt consolidation loan.
What is a debt management plan?
A debt management plan is a type of debt relief provided by financial coaches and counselors. They help develop a realistic monthly plan for your debts and deal with collection calls from creditors.
What are the benefits of credit counseling?
There are several benefits to credit counseling such as reduction of monthly payments, lowering interest rate, and the possibility of improving your credit score in the long run.
What is credit counseling online?
Credit counseling can also be offered by online agencies. Make sure that you investigate these service providers to ensure that they are legitimate and that you can get valid advice from them.
How bad does credit counseling hurt your credit?
When you use a credit counseling service, it will not have a negative impact on your credit score even when it is shown on your credit report.
Does debt management hurt your credit?
Signing up for a debt management plan does not hurt your credit score directly. In fact, a note on your credit report that shows your commitment to repay your debts can even help your credit.
How long does debt settlement stay on your credit report?
The debt settlement will remain in your credit report for as long as the account is reported to the credit reporting agencies. It would take approximately 7 years.
Who is NFCC?
NFCC stands for National Foundation for Credit Counseling. It is the largest and oldest non-profit financial counseling organization in the US.
How does debt management work?
Debt management is when you work with a credit counselor. They will contact your creditors on your behalf about the debt management plan or negotiate a new interest rate. Depending on the agreement, you will be making monthly payments to the debt management provider and they will pay your creditors on your behalf.
Is credit repair legal?
Yes. Make sure you choose a legitimate credit repair company to ensure that they use legal means to fix your credit score.
How much does it cost to repair my credit?
The cost of credit repair will vary according to the provider. Most credit repair companies will have a one-time fee while others charge a monthly fee.
Does using credit counseling hurt your credit?
Using a credit counseling service will not hurt your credit score. The actions you take based on the recommendations given by your counselor will have an impact on your credit score.
What is CCCS?
CCCS stands for Consumer Credit Counseling Services. All firms that are a part of this network provide similar services such as financial education, budgeting, and debt management.
What is a debt settlement?
Debt settlement is a type of debt relief method that involves negotiating with your creditor to reduce the amount you owe. If the creditors agree, you must pay the amount in lump sum.
Does consumer credit counseling work?
It varies according to the credit counseling service you choose to work with. Before you choose one to work with, it is best to read the reviews or check the company’s track record.
Is credit counseling free?
Not all credit counseling services are free. The only ones that are free are those provided by non-profit organizations.
When would you use credit counseling?
A credit counseling service is most useful when you are in debt and struggling to meet (or get caught up) on your debt payments.
Can credit counseling stop wage garnishment?
Yes, finding the right credit counseling service can help you stop wage garnishment.
Can credit counseling help with student loans?
Yes. Credit counseling services can provide assistance for any type of loan or debt, including student loans.
Should I use a credit counseling service?
It depends on your financial/debt situation. A credit counseling service won’t have any negative implications on your credit score because it shows your willingness to pay off your debts.
How long does credit counseling stay on your credit report?
When you enroll into a credit counseling program, it will stay on your credit report for 5 years.
Is it worth going through credit counseling services?
There are certain pro’s and con’s associated with credit counseling services. Take time to learn about the potential benefits and drawbacks before you enroll into a program.
What is the best non-profit credit counseling?
Non-profit credit counseling is designed to provide assistance for individuals overwhelmed with debt. This counseling plan is available for consumers, regardless of their capacity to pay.
How much of your debt does consumer credit counseling settle?
The amount you are able to settle with your creditor via a debt counseling service will largely vary according to your current financial situation, and the status of your debt accounts. Your counselor might be able to negotiate a lowered interest rate, or reduced amount that you must pay in lump sum.

Credit Counseling Process

This section provides a list of frequently asked questions that provide in-depth information on the credit counseling process.

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How does credit counseling work?

Credit counseling works by working with a credit or debt counselor. They will take various steps to help lower the interest rates you are paying on your existing debts and other methods to boost your credit score.

What does credit counseling mean?

Credit counseling is a process that individual debtors go through to reduce or eliminate debt by the consumer. They will help with education, budgeting, and other means of debt settlement.

What does credit repair mean?

Credit repair is the process of fixing your credit score, which might have gone down for many reasons. There are many ways to repair credit such as disputing errors on your credit report or negotiating lower interest rates on your delinquent debts.

Is Consumer Credit Counseling free?

Yes. Consumers struggling with their debts can get confident and non-judgmental consultation about their debt situation, and ways to find a remedy.

How much does CCCS cost?

The cost of consumer credit counseling will vary largely from $0 to $50 (maximum). A nominal administrative fee might be charged to cover for distribution of monthly payments.

What is non-profit credit counseling?

Non-profit credit counseling is a service provided by non-profit organizations, which means that you can get debt counseling for free or relatively cheap.

What does it mean to consolidate debt?

Debt consolidation is a common type of debt relief. It entails taking out a new loan to pay off your multiple debts. Once that is paid off, you will have a single loan to focus repayment on.

What is the average amount of credit card debt carried by recent graduates?

The average credit card debt amount that recent college graduates owe is at $499, according to a survey by a student loan provider.

How can I lower my credit card debt?

There are several steps to lower your credit card debt. You can do so by paying off the credit card with the highest interest rate first. Try not to use your cards while you are paying it off. You can also try to negotiate with your credit card company about lowering your credit card’s interest rate.

How do credit counseling services help debtors handle credit problems?

Credit counseling services or professionals evaluate your debts. Based on their assessment, they can recommend the best method for getting debt relief.

How long does credit counseling take?

A credit counseling session takes only a short amount of time – about 60 to 90 minutes.

Is consumer credit counseling service legit?

Yes. It is your job to research the credit counseling services available and evaluate them accordingly.

How is credit counseling different from debt adjustment?

Debt adjustment is the process of spreading your payments at a longer repayment period. This will enable you to make smaller payments towards your debt. Credit counseling, on the other hand, is a method of eliminating the high interest rates on your credit card to make it easier to manage payments.

How can credit counseling services help debt troubled individuals?

Credit counseling services are designed primarily for debt=troubled individuals. Their goal is to help consumers work out a financial plan or program to repay debts.

What is credit counseling for bankruptcy?

Credit counseling is one of two courses recommended for individuals who plan to file for bankruptcy. The second one is a debtor education course. This applies for all individuals who file for bankruptcy, regardless of the chapter type.

Can you get a car loan while in credit counseling?

While credit counseling will not affect your credit score, there is an entry that will indicate you required an outside party to cope with debts. While this would not affect your credit score, it might make it difficult to get approved for a car loan. It might be a good idea to wait until you’ve completed the credit counseling and debt management plan prior to getting a new car loan.

Can credit counseling help with charge offs?

Credit counseling can definitely help with charge offs, even if you lose the benefit of being able to negotiate interest charges or fees. By including this into your debt management program, you can pay off those debts and eliminate the stress needed to deal with the said debt accounts.

Can I file bankruptcy without credit counseling?

No. It is recommended that you undergo credit counseling before filing for bankruptcy. It is important to determine if they can feasibly handle your debt load and bankruptcy should be viewed as a final option.

What are the criteria for consumer credit counseling?

There are various scenarios that call for consumer credit counseling. One of them is when you are struggling to meet your monthly payment on your debts and credit cards. In addition, it is suitable for consumers that have been turned down for a consolidation loan. Or, if you are struggling with debt, in general, credit counseling is a good idea.

Are my assets protected if I do consumer credit counseling?

Debt counseling is just the first step in managing your debt. Once you enter into a debt management program, the court will order for a debt review and it will protect your assets from being seized by your creditors. The catch is you have to pay your reduced monthly payment.

How soon do I need credit counseling before bankruptcy?

Credit counseling is required before filing for bankruptcy. You must have undergone counseling within a 180-day period before you can file for bankruptcy.

How much can credit counseling save me?

There is no definitive way to measure how much you can save with credit counseling. The whole purpose of counseling is to help manage your debts and ensure that you can restore your credit.

What is the difference between debt consolidation and credit counseling?

Debt consolidation is when you take out a loan to pay off your multiple debts, giving you a single loan to focus repayments on. Credit counseling, on the other hand, counselors work with you to negotiate with creditors about lowering your monthly payments to make them easier to manage.

How does consumer credit counseling affect your bank accounts?

For secured debts, this won’t affect your bank account as the creditor can repossess your collateral (home or car). For unsecured debts, your creditors can freeze your IRS account, or find other ways to get you to pay up. The first thing you need to do is work with credit counseling so they can negotiate a new payment plan that will enable you to meet your payment obligations.

What happens if Paypal Credit is in credit counseling?

The creditors can work with you to negotiate with or communicate with Paypal regarding your credit. From there, you can establish a payment plan for the delinquent debt.

Why is there a monthly service fee for credit counseling?

Credit counseling is free. The monthly service fee is for the debt management plan (of which credit counseling is a part of), which is used by the agency to handle distribution of monthly payments towards your creditors.

What order does credit counseling belong in chapter 7 filing?

You must complete credit counseling course within a 180-day period before filing Chapter 7 bankruptcy. Prior to this, you must complete a “means test”. This requires that the debtor’s current monthly income must be lower than the average for that state.

Are credit counseling fees tax deductible?

Yes. Aside from credit counseling fees, other tax-deductible costs include filing fees, attorney expenses, and trustee fees.

Credit Counseling Providers

In this section, you will get the answers to the most commonly asked questions about credit counseling agencies and providers. If you need help determining how to find them, you can find the information below.

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What is a financial counselor?

A financial counselor is someone who works with financial consumers to provide debt relief services. It is their job to analyze the consumer’s financial or debt situation and recommend the best methods for debt relief.

Can a credit repair company really help?

A good credit repair can effectively help to boost your credit score. It will also depend on your debt situation – if there are no legitimate errors on your credit report, you won’t be able to remove them.

What do debt counselors do?

Credit counselors are knowledgeable and trained in consumer credit, debt management, and all things finance. They can provide counseling on your current financial situation to develop a personalized plan on paying off your debts.

What are the best credit counseling services?

There are several providers of credit counseling services. It would be a good idea to check out client reviews and to have a consultation with them so you can assess the quality of their services.

What can consumer credit counseling do for me?

A consumer credit counseling service can provide you with counseling about your debt situation. You can use them to map out the best debt relief option for your situation to minimize risks and ensure that you can improve your credit score over time.

How to find a reputable credit counseling service?

When searching for a reputable credit counseling service, you must first know what you want. Do you want to lower your monthly payments? Or do you want to reduce the interest rate on your existing debt accounts? It is also important to check reviews and the track record of the concerned credit counseling services.

Where do I go for credit counseling?

There are several credit counseling agencies out there. A good place to start would be the National Foundation for Credit Counseling. It is the largest and oldest non-profit financial counseling organization in the US.

What is the Credit Counselling Society?

The Credit Counselling Society is a non-profit credit counseling and debt solutions provider in Canada.

Who funds credit counseling services?

Credit counseling services get their funding from creditors and through payments made by the consumer upon enrollment into a debt management plan.

Elizabeth Johnson


Elizabeth is an expert on Debt Consolidation as she provides helpful advice to people who are dealing with debt problems. She graduated college with a BS in Finance. After college, she took a job working at a non-profit debt counseling program. It was at this position where Elizabeth honed her expertise for helping people understand how different financial products work and finding ways to help people pay off their debts.

 

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