Credit counseling: How to choose an organization that’s right for you


Is your debt controlling you? Credit counseling might help you get out of your financial funk, whether you’re mired in debt from medical bills, major home repairs or student loans. Credit counselors, who work at organizations that offer credit counseling services, review your financial situation by analyzing your household budget, credit reports and consumer debt in order to improve your financial situation.

About one in four U.S. adults, which correlates to over 56 million Americans, indicated they would reach out to a professional non-profit credit counseling agency for help, according to the 2019 financial literacy survey by the National Foundation for Credit Counseling (NFCC).

Though you can approach a credit counselor for suggestions about budgeting, debt issues are generally the main reason consumers contact a credit counselor. Specifically, individuals who usually have about $10,000 to $15,000 in credit card debt on multiple cards, according to U.S. News and World Report.

“Ideally, it’s for individuals who are experiencing any level of difficulty managing their debt and getting ahead of their payments and keeping up with their accounts. Anyone struggling in those areas should reach out to a nonprofit credit counseling agency,” says Bruce McClary, vice president of marketing for the National Foundation for Credit Counseling.

Organizations that offer credit counseling

It’s important to consider the differences between for-profit and nonprofit credit counseling services before choosing a credit counselor.

Nonprofit credit counseling organizations

Credit counseling organizations are usually nonprofit organizations that can give you insight on how to manage your money and debts, according to Nonprofit credit counseling organizations, such as credit unions, usually offer free educational materials and workshops.

An initial counseling session typically lasts an hour and you can also take advantage of follow-up sessions and the credit counselor may create a debt management plan for you. A debt management plan usually requires you to make a single payment to the credit counseling organization each month or pay period so the credit counseling agency can turn over these monthly payments to your creditors.

“Nonprofit credit counseling agencies are organizations that are legitimately 501(c)(3) tax-exempt credit agencies. There’s a mandate to provide some sort of education and service in the most affordable way,” says McClary. “Nonprofit counseling agencies are regulated and how much they can charge in fees and services are structured to have a positive impact on the people they’re helping. Simply put, the services of nonprofit agencies are by and large more affordable and accessible and include a greater level of financial education than anyone would receive from a for-profit.”

For-profit credit counseling services

For-profit debt settlement companies are generally not credit counseling services and they usually charge a fee for their services.

McClary says there are debt settlement companies everywhere. The Consumer Financial Protection Bureau (CFPB) lists several risks that you may want to consider before you choose a debt settlement company:

A debt settlement company may prefer that you stop paying your credit card bills during the negotiation process, which could ultimately damage your credit score. You may encounter late fees, penalty interest charges and other fees.
Some of your creditors may refuse to work with your settlement agency of choice.
Debt settlement companies are often unable to settle all your debts.
A creditor might file a debt collection lawsuit against you.
Penalties and fees on unsettled debts may wipe out any savings the debt settlement company may be able to get you.

So, what’s the attraction to debt settlement companies? McClary says that debt settlement companies often make offers and claims that are too good to be true. For example, a debt settlement company might offer the chance to wipe out your debt without paying a penny. It’s a stark comparison to credit counseling; a nonprofit credit counselor will help you pay back every penny you owe.

Another alternative is seeking out a financial advisor, who can offer similar services to credit counseling but with a fee. Tapping into a financial advisor’s knowledge is an excellent way to get a handle on your debt. A trusted adviser will be able to walk you through how to approach the debt, how to consolidate it if needed and more.

Types of credit counseling services

Credit counseling can offer you several types of services, including general budgeting services, debt management plans, bankruptcy counseling, student loan counseling, housing counseling and more.

General budgeting

A credit counselor can help you through general budgeting techniques. Your credit counselor will often offer a free initial session, typically an hour long, which will include an overview of your financial goals and current financial practices. Budgeting conversations will include an overview of income, expenses and a rundown of your financial goals. You may be able to obtain additional budgeting counseling sessions beyond that one session.

Debt management

A credit counselor creates a plan to consolidate your debts and lower the interest rate. Typically, a credit counselor aims to help you erase the debt over three to five years.

Bankruptcy counseling

Bankruptcy is a legal proceeding filed in the United States Bankruptcy Court that allows you to obtain a discharge of your obligation to pay certain debts. Bankruptcy counseling gives you two financial education sessions: before you file for bankruptcy and another when your debts are discharged.

Student loan counseling

Having trouble paying back your student loans? You might look to a credit counselor for information on repayment options. A counselor may help you undergo conversations with your student loan issuers to reduce your interest rates or consolidate your loans if it makes sense to do so.

Housing counseling

Have some questions about housing as a first-time home buyer? Having trouble paying your rent? No matter the situation, there may be a variety of options available to you through credit counseling.

In a nutshell, credit counselors will do the following, according to

Eliminate late fees and over-limit charges.
Stop collection calls.
Lower interest rates regardless of credit score.
Consolidate bills into one smaller monthly payment.
Pay off your debt faster.
Improve your money habits.
What to look for in a credit counselor

There are specific factors you should consider when choosing a credit counseling agency. Be sure to check if the agency is accredited, accessible and affordable.

Accreditation and certification

Choose a counseling agency that is accredited by the NFCC to ensure that the services you receive are legitimate.

McClary says that any credit counseling agency on is a nonprofit credit counseling agency. “They’re independently accredited by the NFCC, which means they go through an audit to make sure they’re meeting guidelines,” he adds. “It adds to the peace of mind that people can feel when they connect to an NFCC agency, to know that it’s legitimately nonprofit and provides services ethically.”

Every NFCC member agency must obtain and maintain accreditation by the Council on Accreditation (COA). COA is an independent third-party nonprofit accrediting organization that has reviewed more than 1,500 social service programs to ensure compliance with rigorous best-practice standards. All NFCC member agencies must be re-accredited by COA every four years.

All agencies seeking COA accreditation are reviewed in eight specific areas:

Mission and purpose
Quality assurance
Governance and administration
Human resources
Service environment
Financial management
Professional practices
Service delivery

Do you have easy access to your credit counselor? Aim to tap into a credit counseling agency in your area if you’d like to meet one-on-one with a credit counselor. You can also do credit counseling over the phone instead. Check to be sure that the organization offers strict standards and regular audits for data security, counselor accreditation and customer service.


Counseling fees vary by each member agency, but you may have access to a credit union that offers free services.

Some services are offered for free and some are set based on specific regulations, says McClary. “Your first consult is typically free. If you start with the debt management program, fees can range from $20 a month to $40 to $50 a month. A lot of it depends on the amount of debt, creditors you owe and negotiated terms of repayment,” he adds. “A lot of people focus on fees in these situations, when overall savings in the course of the repayment plan eclipses any of the fees anyone has to pay. The savings overall is still measured in thousands.”

Reducing your interest rate of 36% per year to 5% is significant enough to offset the fees that are charged. Any fees are directed toward the care and maintenance of that particular credit counseling program.

How to get started

All you need to do is take one small step in the right direction: Decide whether credit counseling is right for you.

Are you trying to continue making your house, car and utility payments and pay off credit cards at the same time? Ask yourself how you’ll get a handle on your debt and finances once and for all.

McClary says it’s important to get help as soon as you know you need it. One major reason? You could negatively impact your credit score. A bad credit score can tell lenders that you’re a high-risk borrower and they may not extend a loan to you when you want or need it.

Finally, make sure you choose your organization carefully and make sure it’s accredited so you know you’re working with a legitimate agency and not a debt settlement company.

McClary says that not taking advantage of nonprofit credit counseling could cost you twice the amount of time and even longer to pay back your portion of the debt. “You save thousands of dollars to go through this program and honor your commitment to pay off the debt. That always looks better than having the debt settled,” he says.

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