Credit counseling isn’t just for people who have large amounts of debt. Nonprofit credit counselors offer free general budgeting sessions to help you improve your financial literacy, explore debt consolidation options, and make a plan for reaching important financial goals like improving your credit score or saving for a home.
With that plan in hand, you can decide together whether you might benefit from ongoing services like debt counseling, bankruptcy counseling, or housing counseling.
Table of contents
Do you have too much high-interest debt? Are you wondering how best to manage it so you can get back on track?
Whether you’re looking to overcome a poor credit score, bankruptcy, or too much high-interest credit card debt, there are many ways to manage what you owe. But it’s easy to feel overwhelmed if you’re not familiar with these strategies.
Consider talking with a credit counselor, a trained professional who can relieve some of your financial stress by helping you take action. Credit counselors are well versed in debt management solutions, including mortgages and debt consolidation loans, and they can help you develop a plan to reach important financial goals.
Read on to learn more about the credit counseling process, whether it makes sense for you, and how to get started.
What is the credit counseling process?
Most reputable credit counselors are nonprofit service providers who can advise you on managing your debts, help you develop a budget, and may offer free educational materials and workshops.
An initial counseling session typically lasts an hour, during which the counselor will discuss all the details of your financial situation with you. The purpose of this free session is twofold: to improve your financial literacy; and to help you develop a personalized plan for attacking financial goals like saving for a house, planning for retirement, and paying down debt.
In addition to this first session, credit counseling agencies offer a range of paid services to help you reach those goals, including debt management plans, bankruptcy counseling, student loan counseling, and housing counseling (see chart). These services won’t affect your credit score; and their fees vary by agency, state, and individual financial need. Be sure to check the costs of any ongoing services before agreeing to them.
Who should consider credit counseling?
You might think credit counseling, also known as debt counseling, is only for consumers in heavy debt, but that isn’t always the case. For example, even if you’re struggling with only a couple of outstanding credit card or medical bills, working with a professional could improve your ability to put them behind you. This is especially true if you’re getting calls from debt collection agencies.
If you aren’t sure how you’ll ever become debt free, a credit counselor can help you figure out what to do next. For example, you might find that a personal loan is an excellent option. Consolidating higher-interest debts into one fixed-rate loan might help you save money on interest, determine a set date when your debt will be paid off, and pay off your balance faster.
Feeling overwhelmed is another reason to get professional advice. If your bills seem to be growing faster than you can handle them, or you aren’t making much of a dent in your overall debt, having a professional to guide you in budgeting could be key.
Whether you want to eliminate credit card debt and improve your credit score, or you have various debts that are getting harder to keep track of, a credit counselor can advise you on what you might do to shrink your total debt immediately. Their suggestions might include everything from making a budget you can stick to, to automating your payments, to improving your financial literacy with ongoing education.
How to find a consumer credit counseling service
Once you’ve decided you might benefit from credit counseling, try reaching out to several firms in your area. You don’t have to commit to anything at this stage. Just use these conversations to learn more about the process. A reputable credit counseling agency should give you free information about the services it provides, without requiring you to provide any details about your situation.
According to the Federal Trade Commission (FTC), most reputable credit counselors are nonprofit, so consider that as the first criteria in your search. Once you have a list of potential debt counselors, the FTC recommends asking the following questions :
- What types of services do you offer?
- How much experience do you have?
- What are your fees? (Your contract should outline the services you’ll receive, along with information on canceling your agreement when the time comes.)
- Are you licensed to provide debt counseling services?
- Do you have a system in place for keeping personal identifying information secure?
To avoid debt counselling scams, verify the agency’s accreditation, which you can do through the National Foundation for Credit Counseling. And be sure to ask for references from three (or more) clients. You could also contact the office of your state Attorney General to ask about any potential complaints. Entering into an agreement with a disreputable organization can lead to additional financial problems, along with more stress in your life.
Finally, it’s important to know that nonprofit credit counseling agencies are not the same as for-profit credit repair or debt settlement companies. Credit repair companies tend to charge fees for services you may be able to do yourself. And debt settlement—when a creditor agrees to accept less than the full amount you owe—often comes with a host of consequences you will want to avoid if possible, including damaged credit, years spent reaching a settlement, and significant fees.
With the average U.S. household carrying roughly $135,000 in debt, many people feel overwhelmed and confused about how to improve their financial health.
If you find yourself struggling to get back on your feet, and you’re tired of dealing with the stress of debt, consult a debt counseling service and find out what they can do to relieve the pressure.
While you do that, you might also look into how consolidating your debt with a personal loan could help. Consolidating all your debt under one fixed-rate personal loan comes with these benefits:
- One set regular monthly payment to manage
- Potentially lower interest rate than the ones on your current debts
- Fixed interest rate
- Variety of repayment terms to choose from, typically ranging from three to seven years, so you can find a repayment term with a monthly payment that fits your budget
- No origination fees or prepayment penalties from some lenders, including Discover Personal Loans
Use our debt consolidation calculator to see how much money you could save on interest with a Discover personal loan.Estimate Savings