What is Credit Counseling?

When are in need of some serious financial help, you might consider credit counseling. If you have a credit card, chances are there is a toll-free credit counselor hotline to call if you have trouble paying your credit card balance every month. Credit counselors can also help you make a plan to get your debt payments out of control. If you are in debt and need help, should you consider credit counseling?

The Basics of Credit Counseling

The National Foundation for Credit Counseling was found in 1951. ¬†Although, it wasn’t until the mid-1960s when credit counseling became common as banks and credit card companies began offering counseling services to the growing number of customers that were declaring personal bankruptcy.

There are two different phases of credit counseling.

Money Management Plan

The first service credit counselors will offer you, is reviewing your current financial situation. By sharing your current debts, income, and credit history, the counselors can help you create a money management plan.

The money management plan generated during your credit counseling sessions will include making a budget to begin living within your means and create a timeline to get out of debt with your current salary and not borrowing any more additional money.

Credit counseling agencies often offer money management plans for free. As the money management plan can often be drafted during your initial consultation, the counseling agencies make money when you signup for a debt management plan .

Debt Management Plans

The second service that credit counselors offer is debt management plans. If you cannot afford your current loan payments, it is possible to refinance your debts with an agency. Instead of making your payments to the credit card company or bank that owns the loan, you make a single lump-sum payment to the credit counseling agency each month and they will distribute the appropriate payment to each lender.

Another benefit of debt management plans is that the agency can negotiate a lower interest rate with lenders on your behalf. If you don’t have the time or don’t feel comfortable asking your lender for a lower rate, your counselor will do it for you.

There is a monthly fee involved with debt management plans. You will pay a one-time setup fee that can cost up to $50. Each month, you will need to pay an administrative fee that can either be a flat fee or a percentage of your debt payment. You might pay upwards of $75 a month depending on your debt balance and the counseling agency’s fee schedule.

If you continually miss payments and are charged late fees or relying on payday loans, the monthly charges for the debt management plan can still be cheaper if that is the necessary trick to make you start paying your bills on time.

How Much Does Credit Counseling Cost?

If you only want to talk with a counselor to make a plan to sit down and make a budget and debt payoff plan, those sessions are often free. Call around town or check the internet for local counseling agencies that offer free money management planning sessions.

When you want the counseling agency to manage your debt payments, you will have to pay a fee for that. In exchange, a good counselor should be able to negotiate lower rates on your behalf and save you money.

For-Profit vs Non-Profit Credit Counseling

Credit counseling is often a last resort financial tool for many people. If you are pressed for time and desperate for help, you might choose the first credit counseling agency you find listed online or in the phonebook.

Generally, it is best to use a non-profit agency that has been accredited by the National Foundation for Credit Counseling. Non-profit agencies often have more accountability to local and state government regulations and they don’t apply as much pressure to sell add-on services to boost their profit margins.

There are good for-profit credit counseling agencies, but, some of them might try to increase their profits by selling add-on services you don’t need. These agencies are also more likely to charge you for money management counseling, whereas most non-profit agencies won’t.

No matter what agency you choose, make sure they will never stop making payments to the lenders as a negotiation tactic. Even though you have tasked the agency with sending the monthly payments, your credit score will still be negatively affected if they do not send it in on time for any reason.

Advantages of Credit Counseling

Credit counseling can be advantageous when:

  • You need professional financial help to get out of debt
  • Don’t understand money management
  • Want an agency to be responsible ensuring your monthly debt payments are on time
  • Need somebody else to negotiate lower interest rates on your behalf

Disadvantages of Credit Counseling

You might not need credit counseling when:

  • You can be responsible for sending your own monthly payments
  • Can negotiate your own lower interest rates and payment plans with lenders
  • Already have a budget but haven’t followed it
  • Only have a small amount of debt (i.e. $10,000 or less) and can repay it quickly


Credit counseling was implemented to help individuals correct their financial mishaps before the only other option is to declare bankruptcy. If you need help with making a budget and being held accountable to make your monthly payments, credit counseling can be very beneficial. For those that have the time and motivation, a little extra effort is all that is needed to make your own financial plan and payment schedule without paying the additional counseling costs.


Disclosure: The information provided by The Financial Genie is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. The Financial Genie does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. Additionally, some of the organizations with products on our site may pay us a referral fee or affiliate commission when you click to apply for those products.

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