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Nonprofit Credit Counselors vs. Debt Relief Companies

4 min read

Last Updated: April 16, 2025

Table of contents

Key Takeaways

Nonprofit credit counselors offer free or low-cost services; debt relief companies may charge high fees.
Nonprofit credit counselors offer personalized plans to repay debt and establish new credit habits.
Debt relief companies may focus on settling your debt with less focus on your overall financial health.

If you’re looking to get out of debt, it might seem overwhelming to do it alone. The good news is that you don’t have to. You have a few choices, including nonprofit credit counseling and debt relief companies.

Nonprofit credit counseling may offer trained and certified credit counselors who can help with debt management plans, budgets, and other money matters. In contrast, many debt relief companies may only focus on paying off debt rather than helping consumers manage their financial lives better.

The difference between a credit counselor and a debt relief company is important to know if you’re need help managing unsecured debt—such as credit cards, personal loans, student loans, or even medical bills. With the best debt relief option for your unique circumstances, you could repair your finances and get back on track.

How can a nonprofit credit counselor help you?

Nonprofit credit counselors may offer more simple and thorough solutions to managing your money than a debt relief company. Here are some of the benefits of working with a nonprofit credit counselor:

Free counseling services: Many offer financial counseling for free and with no obligations.
Low-cost debt management plan: you might also get help to develop a debt management plan (DMP). This might have a monthly payment fee. It’s a good idea to review all your options and understand exactly what a DMP offers before agreeing to the terms.
Highly qualified support: Credit counselors typically undergo training and must pass rigorous tests to get certified. Topics they are trained in may include credit card debt resolution, mortgages, student loans, and bankruptcy.
Holistic financial support: A credit counselor may help in more than one way. They can give strategies to pay off your debt, help you figure out why you got into debt, and offer ways to develop better habits moving forward.

What is the process of working with a nonprofit credit counselor?

You might be able to receive credit counseling online, by phone, or in person.

A credit counselor will review your overall financial picture. This includes your income, bills, debt, and other obligations such as child support. A counselor then can help you decide on a plan to deal with your debt. They can also help you create a realistic household budget that includes debt repayment.

Your credit counselor may offer to help you with a debt management plan. A good DMP helps lower the interest you’ll pay, according to the Consumer Financial Protection Bureau, and establishes a reasonable timeline for repayment. You, your counselor, and your creditors will agree to a specific timeline for repayment. You’ll make monthly payments into an account with a credit counselor, who then pays your bills. This process proceeds until you pay off your debts.

If you enroll in a DMP, it may result in closing your unsecured credit accounts. Closing accounts may lower your credit score by reducing your available credit and lowering the average age of your accounts. However, this can still pay off in the long term.

One benefit of a DMP is that you’ll still make on-time payments to your creditors. This can differ from debt relief companies. Debt relief companies might stop payments to your accounts while they negotiate a settlement. Stopping payments might cause more significant damage to your credit.

Before working with a credit counseling agency, do some research to ensure they’re legitimate and have a good track record. You can ask your bank or credit union for recommendations.

Did you know?

Once you get your credit card debt under control, you may want to rebuild your credit score. A secured credit card may help. Secured cards don’t typically require a credit score. Instead, you provide a deposit to apply. These can be helpful options for people with lower credit scores.

Learn More

What you should know about debt relief companies

A debt relief company is often a for-profit business that charges consumers for their services. A debt relief company may also go by the name of debt settlement company or debt consolidation company. They also can vary in terms of what they can achieve.

Debt settlement companies may have you open a account with their company and you’ll make monthly deposits. A third party usually manages this account. According to the Consumer Financial Protection Bureau, you’ll pay into the account and cease payments to your credit cards or other loans. Once you pay a pre-determined amount in the account, one of their representatives will reach out to your creditors to make settlement offers.

There’s no guarantee that your creditors will accept the offers from debt relief companies. Debt settlement can take many months. After enough time passes, the accounts may receive a charge off by the creditors and lenders, which may hurt your credit history.

By signing an agreement with a debt relief company, you usually transfer debt control to the company. This allows them to make decisions about your accounts going forward.

Keep in mind that the consolidation offered by debt relief companies is different from consolidating your debt yourself. You might, on your own, use a financial product such as a personal loan, credit card balance transfer, or home equity loan from your bank or credit union. These forms of debt consolidation loan leave you solely in charge of managing your debt, and you may need a good credit score to qualify.

Finally, note that most debt settlement companies focus on reducing and repaying your debt. You might not receive credit or debt counseling that could prevent you from repeating your mistakes.

Weighing your debt settlement options

Are you still unsure where to turn? Here are two helpful examples:

Debt relief company: Sally Smith owes $10,000 across five credit cards. She goes to a debt relief company that charges a fee of 25% of the total amount of debt settled. If the debt relief company can get every creditor to settle for 50% of what Sally owes, she’ll provide $5,000 to pay her creditors, on top of paying a $1,250 fee to the debt relief company. Once Sally agrees to the settlement, she’ll need to make full payment immediately.

Credit counseling: Sally signs up for a debt management plan through a credit counseling agency that comes with a small monthly administration fee. Her nonprofit agency was able to negotiate lower interest rates and fee waivers with each creditor. This meant Sally had more manageable monthly payments and more savings over the course of her repayment.

The bottom line

If you feel overwhelmed by your debt, you have options to get it under control. Both nonprofit credit counseling and debt relief companies offer plans that could help. Which tool will be right for you depends on your goals, budget, time, and style of financial management. It’s important not to be afraid to seek out help with your debt.

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