Mar 05, 2025
Credit counseling, also known as debt counseling, provides you with guidance and options to help get your finances back on track. By learning about and finding the right type of counseling, you may be able to take a big step toward reaching your financial goals.
If you need advice or assistance managing your money and debts, you should know you’re not alone. There is help available. Setting priorities, knowing your options, and working out a budget might be keys to easing your situation.
This guide will explain the basics of credit counseling and how you might find the best options for you.
Credit counseling provides consumers with advice and guidance for managing their money and debts. Credit counseling agencies are usually nonprofit organizations that offer several different services to consumers.
If your debt feels unmanageable, a credit counselor can help you understand your situation better. According to the Consumer Financial Protection Bureau, reputable credit counselors are certified and trained to help with credit, manage money and debt, and create budgets.
By working with a credit counselor, consumers may find guidance for several kinds of issues:
Keep in mind that debt consolidation is different from a debt settlement. Credit counselors can assist with lowering overall monthly payments, not lowering the balances owed.
Most credit counseling agencies offer help over the phone or online. A credit counselor usually begins with a free, one-hour, confidential session to learn about your situation and explain their services .
A credit counselor may help you develop a budget and could recommend approaches to addressing your credit card debt. This may include a debt management plan tailored to your personal situation.
A credit counselor may also help with a plan to meet financial goals, such as buying a house or saving for retirement. If you have specific debt issues, there are nonprofit counselors for student loans, housing, and bankruptcy proceedings. In addition, many universities, financial institutions, and military bases may also provide credit counseling.
Working with a debt counselor does not affect your credit score. They may want access to your credit reports, but those can be obtained through a “soft credit pull,” which does not negatively affect your score.
A debt counselor may suggest steps to help ease your financial situation. Depending on the plan, these moves might affect your credit history. If you pay off an account in full, that has a positive impact on your history. If you close an account or negotiate a lower amount to settle the debt, it may have a negative effect on your credit. Creditors may also add a note to your credit report that you are working with a credit counseling service, which could negatively affect future lending decisions.
Many credit counseling agencies are nonprofit and do not charge a fee. If a debt management plan is developed, though, there might be a cost. Setting up a debt management plan may cost up to $99, while monthly fees might reach $75.1 A reputable credit counseling agency will not pressure you to choose a debt management plan or other solution.
Working with debt settlement companies may be more expensive. These companies offer to negotiate with your creditors. Fees may range from 15% to 25% of the amount that is settled.1 There may also be tax implications, which could add to the expense.
In general, fees may vary by the credit agency, settlement company, your state, and individual financial need. Make sure to check the costs of any services before you agree to them.
As you consider alternatives, you will want to determine the right approach for your financial situation. Credit counselors are there to help you choose the method that best suits your needs.
| How Credit Counselors Can Help |
|---|
Advise you on managing your money and debts |
Assist you in developing a budget |
Show you how to get a copy of your credit report and scores |
Offer free educational materials and workshops |
Organize a debt management plan to pay down your debts |
Credit counseling isn’t just for people who have large amounts of debt. Credit counselors can also assist with other situations. You might want to seek credit counseling for certain goals:
If you’re dealing with unexpected bills or expenses, a credit counselor might also help you figure out your next steps by exploring the available options for your sepcific needs.
If you think credit counseling may be a good fit for you, start by reaching out to national nonprofit credit counseling services or local agencies. Agencies should be willing to provide you with free information about services without requiring your financial details upfront. You also might look for agencies that are members of the National Foundation for Credit Counseling.
Ask questions before deciding on an agency. The Federal Trade Commission recommends several questions to consider:3
Once you have a list of counseling agencies you want to consider, verify each one with your state Attorney General and local consumer protection agency.
You will want to know if there are consumer complaints about an agency. Even if there are no complaints, be sure to interview the agency to help ensure that they are legitimate. And always make sure you understand the fees involved before signing up for a debt management or any credit counseling service.
Keep in mind that for-profit credit repair or debt relief companies are different from nonprofit credit counseling agencies. Some of these firms may falsely promise to reduce your payment obligations.4 Debt settlement may also take up to four years and can hurt your credit score. In addition, there may be fees involved and tax implications.
According to Experian, Americans have an average of $104,215 in consumer debt, including mortgages, student loans, and other borrowings.5 It’s no surprise that many people are stressed out by their debt and may not be sure how to improve their finances or where to begin.
Consulting a debt counseling service to learn how they can help may be one way to relieve the financial pressure.
A personal loan might also be an option for managing debt. Consolidating high-interest debts into one loan with a fixed rate may help you save money, pay off your balance faster, and give you a set date when you will be debt free.
A fixed-rate personal loan comes with these benefits:
At Discover® Personal Loans, there are no fees of any kind as long as you pay on time . You can also choose from multiple repayment options to fit your budget—36, 48, 60, 72, or 84 months.
Want to learn more about how a debt consolidation loan from Discover could give you peace of mind and help you reach your financial goals?
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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.
