What is credit counseling?
Key takeaways:
Credit counseling can help you create a debt payoff plan. A better credit standing usually follows naturally.
Working with a credit counselor can help if you're feeling overwhelmed.
Many credit counselors charge minimal or no fees.
Knowing when it's time to ask for help is a sign of courage, confidence, and intelligence. Getting the right information from the right person could help you change your financial life for the better.
Let's take a look at how credit counseling works and what it can—and can't—do for you.
What is credit counseling?
Credit counseling is advice, guidance, and support to help people manage their finances. Typically, credit counseling organizations are non-profit—but it's important to note that they are often funded by major creditors. It's in creditors' interests to provide resources that help you manage your finances well and pay your debts.
People who work for credit counseling organizations are called credit counselors. They're usually certified or accredited, and they're knowledgeable about budgeting, credit, and debt management.
Benefits of credit counseling
Credit counseling agencies help people get a better grip on managing their money. Here's how that can benefit you.
Knowledge and expertise. Certified credit counselors are trained to deal with common financial issues like debt and budgeting struggles. You don't have to try to figure out a solution to your financial situation on your own—your counselor can use their expertise to help.
Thorough review. When you meet with a credit counselor, they walk through every aspect of your finances with you. That can help your counselor figure out the best solutions.
Low costs. Credit counseling might cost you very little or nothing at all.
Who is credit counseling for?
Credit counseling is designed for people who want education or coaching about how to approach their finances.
For example, you might seek out a credit counselor if you:
Need help putting together a monthly budget
Want an extra set of eyes to look over your debt repayment plan
Are struggling to keep up with bill or debt payments and want to avoid falling behind
Can only make minimum payments on your debts
Live paycheck-to-paycheck and want to change that
Credit counseling might not be right if you're way behind on credit card payments or other debts. Likewise, it may not work if you're thinking about bankruptcy. At that point, a credit counselor may not be able to offer much help.
What can a credit counselor do (and not do)?
How credit counselors can help depends on what's going on with your finances.
Some of the things a credit counselor can do:
Analyze your spending and income to help you create a workable budget
Help you get your credit reports and scores
Offer advice on managing your finances
Help set up a debt management plan. This is a 3 to 5 year plan to fully pay off your credit card accounts, medical debts, and other unsecured debts.
Give you free educational resources to help you improve your financial situation
So – what can a credit counselor NOT do?
They can't repair your credit, or lower the amount you owe. Credit counselors may only offer advice for certain kinds of debt, like credit cards. They might not be able to help with things like mortgage debt, but they should be able to help you connect with a housing counseling agency.
A credit counselor can't erase court judgments related to unpaid debts. If a creditor sued you and won, credit counseling won't make that go away.
Tips for choosing a credit counseling agency
A good first step in choosing a credit counseling agency is finding one that's accredited. The National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) both offer accreditation for credit counselors.
You can also find out if a credit counselor has a seal of approval from the Department of Justice. The DOJ approves credit counseling organizations for pre-bankruptcy counseling. You can search online to find agencies in your area.
Once you have a list of credit counseling agencies, it's time to ask a few questions:
Are there fees? How much are they?
Are the credit counselors certified?
What kind of services or solutions does the agency offer?
Are there consumer complaints filed against the agency?
One big red flag is if a credit counselor asks for fees before performing any services. Likewise, steer clear of any organization that makes promises that seem too good to be true.
Alternatives to credit counseling
Credit counseling can help you find your footing if you're in debt or need advice. But it's not the only option for financial relief.
For example, you might consider talking to a debt consultant if you've fallen behind on payments. A debt consultant can look at your situation and offer possible solutions. Those could include consolidating debts or resolving your debt for less than you owe.
There are also apps that can help you manage your money better, get budgeting help, or pay down your debt yourself. The Achieve MoLO app helps you stay on top of your income and expenses so you have more money left over each month. And you can use the Achieve GOOD app, to create your own debt payoff plan and pay down your debt faster.
Regardless of where you seek financial advice, it's better to do something than nothing. Talking to a credit counselor or debt specialist can help lighten your load, and make it easier to focus on managing your situation.
Frequently asked questions
How can you tell if a credit counseling agency is trustworthy?
A good way to tell if a credit counseling agency is trustworthy is to look at whether they're accredited and their credit counselors are certified. Both can indicate that you're working with a reputable agency. Reading online reviews can also give you an idea of what other people are saying about a credit counseling organization.
How is credit counseling different from debt resolution?
Credit counselors look at your financial situation and offer advice. That might include budgeting or enrolling in a debt management plan. Debt resolution means negotiating with your creditors to pay less than what you owe to close out your account.
Is credit counseling the same as credit repair?
No, credit counseling focuses on offering advice about money, budgeting, and debt. Credit repair centers on helping people improve credit scores, often through disputing information on their credit reports.
