What Is Credit Counseling?
In plain English
Credit counseling is a service provided by trained financial counselors who help individuals manage debt, create budgets, and understand their financial options. Nonprofit credit counseling agencies are the most reputable, offering free or low-cost services. They review your complete financial picture, provide personalized recommendations, and can enroll you in a debt management plan (DMP) if appropriate for your situation.
What Happens During a Credit Counseling Session?
A certified credit counselor reviews your income, expenses, debts, and assets. They help you create a realistic budget, identify problem areas, and understand all your debt relief options — including self-managed payoff strategies, debt management plans, consolidation, settlement, and bankruptcy. A first session is typically free and lasts 60–90 minutes. Counselors may provide ongoing support or refer you to appropriate resources based on your situation.
How Do You Find a Reputable Credit Counseling Agency?
Look for agencies approved by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). These organizations set standards for counselor certification and fee transparency. The U.S. Department of Justice also maintains a list of approved credit counseling agencies for bankruptcy purposes. Avoid for-profit companies advertising debt settlement services under the guise of credit counseling — they operate very differently.
Is Credit Counseling Different from Debt Settlement?
Yes — significantly. Nonprofit credit counseling helps you understand options and, if appropriate, sets up a debt management plan where you repay debts in full at reduced interest rates. Debt settlement companies negotiate to pay less than the full amount owed, requiring you to stop payments, damage your credit severely, and pay large fees. Credit counseling preserves your credit where possible; debt settlement deliberately damages it.
Frequently asked questions
Does credit counseling hurt my credit score?
Credit counseling itself does not affect your credit score. Enrolling in a debt management plan through a counselor may close certain credit cards, which could temporarily reduce your available credit, but making consistent on-time payments through a DMP improves your credit over time.
Is credit counseling free?
Initial consultations at nonprofit agencies are typically free. Monthly fees for debt management plans average $25–$35. Some agencies offer fee waivers for those who cannot afford them. Avoid any agency charging large upfront fees or that will not provide pricing in writing before you agree to services.
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Related terms
Debt Management Plan
A debt management plan (DMP) is a structured repayment program offered through nonprofit credit counseling agencies. It consolidates unsecured debt payments and often secures reduced interest rates.
Debt Consolidation
Debt consolidation combines multiple debts into a single loan or payment, often at a lower interest rate. It simplifies repayment and can reduce total interest costs.
Debt Settlement
Debt settlement is a negotiation process where creditors agree to accept less than the full amount owed. It can eliminate debt at a discount but severely damages your credit.
Bankruptcy
Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure debt they cannot repay. It offers a fresh start but has serious long-term credit consequences.
Debt Snowball
The debt snowball method pays off your smallest debt balances first to build momentum. It prioritizes psychological wins over minimizing total interest paid.