- Financial Term Glossary
- Credit Counseling
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.
Credit Counseling FAQs
What is the difference between credit counseling, debt resolution and bankruptcy?
While you could be eligible for different debt solutions, there are advantages to debt resolution that could help you reduce your debt and get out of debt faster than making minimum payments.
Credit counseling: Can help you learn to budget and stop overspending. Counselors can enroll you in a debt management plan where they typically lower your interest rates and set up a payment schedule, to simplify debt repayment and make it more affordable. Credit counselors control your (the consumer’s) money and when/how the money is distributed to the creditors.
Debt resolution: Means convincing your creditors to accept less than you owe as payment in full. They may be willing to do so if you cannot afford to repay the full amount. With debt resolution, and specifically Achieve Resolution, you (the member) approve all actions by Achieve Resolution - i.e. Achieve Resolution does not control your money and when/how the money is distributed to creditors — everything must be approved by you.
Bankruptcy: A court-ordered plan in which you either surrender assets or pay into a plan to discharge some or all of your debts.
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