Credit Counseling

Credit counseling summary:

• Credit counseling is a service to help you with your finances. 

• Credit counseling is often offered by nonprofit groups. 

• A credit counselor can teach you about budgeting, managing credit, and paying off debt.

Credit counseling definition and meaning

Credit counseling is a service, usually offered by nonprofit groups, that helps people get a handle on their finances, especially when they're learning money management or dealing with debt. You chat regularly with a trained counselor. They look at your money situation, like how much you earn, spend, and owe. Then they give you tailored advice. This might include tips on budgeting, cutting back on expenses, and making a plan to pay off your debts. If you feel like you need help managing your debts but you can afford your payments, they might even set up a debt management plan for you. 

Credit counseling comprehensive breakdown

Credit counseling is a service that helps people manage debt and improve their finances. It can include financial education, budgeting, and debt management plans.

• You don't have to be in deep financial trouble. Anyone who hopes to manage their money more effectively can benefit from what they learn through credit counseling.

• Credit counseling doesn’t impact your credit score.Simply enrolling in credit counseling will not hurt your credit score.

• A debt management plan could affect your credit score. Enrolling in a debt management program could cause your credit score to temporarily dip. That’s because you’ll probably be required to close your credit card accounts. Closing credit card accounts while you’re still paying them off is likely to have a negative impact on your credit scores. 

• Credit counseling doesn’t reduce your debts. Credit counseling is for helping you learn to manage your finances. If you enroll in a DMP, your credit counselor might be able to get your creditors to agree to lower your interest rates or waive some fees. But the expectation is that you’ll pay off your debts in full.  

Credit counseling: key aspects

If you decide to enter a credit counseling service, here's what you can expect:

• A thorough review of your finances

• Help creating a realistic budget tailored to your income and expenses

• If you're struggling with your finances but have the means to repay your debts, a credit counselor can set up a debt management plan (DMP)

• Information about other debt solutions, including debt consolidation, settlement, or bankruptcy.

• Credit education to help you understand how your credit score works and how to build a good credit score

• Credit counseling services often provide ongoing resources and support to help you stay on track

• There is typically a modest monthly fee ($25 to $50 per month) to participate in credit counseling

• If you’re planning to file for bankruptcy protection, you’ll need to complete pre-bankruptcy credit counseling first.

• Reputable credit counseling agencies are accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

Credit counseling could give you the tools you need to manage your finances well in the future.