Overwhelmed by Debt? Here’s What Happens If You Seek Credit Counseling

A woman walking down porch stairs of a house looks in her wallet.
Aileen Perilla/The Penny Hoarder

When you’re struggling with debt, it can be hard to determine the best method for getting rid of it. Snowball? Avalanche? Consolidation? Should you freeze your credit card in a block of ice, or cut it up and toss it in the trash?

If you’re afraid you can’t make your debt payments each month, or you feel like you’ll never get out of debt no matter how hard you try, it can be helpful to speak with a credit counselor. This trained individual can review your financial situation and make recommendations to improve it.

Credit counselors might help you organize your credit accounts, obtain a credit report or develop a budget. Depending on your situation, a credit counselor may even help you set up a plan to pay off your debt.

As an impartial third party, a qualified counselor can provide advice and tips based on your specific situation. Here’s how to decide whether you could benefit from working with one.

How Can I Find a Credit Counselor?

To find a reputable credit counselor, check out the Financial Counseling Organization of America or the National Foundation for Credit Counseling (NFCC). Each maintains a directory of member organizations — most of them nonprofits — that serve a variety of needs.   

Pro Tip

A legitimate organization will be happy to provide information about its services for free, without requiring you to disclose your financial situation.

The Consumer Financial Protection Bureau (CFPB) recommends that you ask potential debt counselors these questions:

  • What services do you offer?
  • How is credit counseling offered?
  • Do you offer free educational materials?
  • What are your fees?
  • What if I can’t afford to pay the fees?
  • Will I have a formal written agreement with you?
  • What are the counselors’ qualifications?
  • How are your employees paid?

As always, be sure to get everything in writing and read the fine print before signing up for any service. The CFPB recommends avoiding organizations that pressure you into a debt management plan before fully considering your financial situation.

Credit Counselor vs. Debt Counselor

If you’re searching for a credit counseling, you may encounter the term “debt counseling” — what’s the difference?

The short answer: Nothing. The terms are interchangeable.

Pro Tip

Credit counselors do not negotiate a reduction in the amount you owe to a creditor, but they may be able to help lower your monthly payments.


Don’t confuse “debt counseling” services with for-profit “debt settlement” or “debt relief” companies, which charge you a fee to arrange a settlement of your debts with creditors.

Some creditors won’t work with debt relief companies, who sometimes advise clients to stop making their regular payments so they can save up the money for a lump-sum payment.

Not keeping up with your regular payments can damage your credit, so working with debt settlement companies should be a last-resort option.

What Can I Expect When I Meet a Credit Counselor?

Your first meeting with a credit counselor, whether in person or on the phone, should last about an hour. Prepare for the meeting by gathering accurate and complete information about your finances.

After the meeting, the counselor will typically provide a written report with the details of your situation and recommendations.

This report won’t be packed with surprises. It will review what you discussed and the next steps, which you likely discussed as well.

What Does a Credit Counselor Do?

Even if a debt management plan isn’t right for you, a credit counselor may still be able to provide services to improve your finances.

A credit counselor can review your credit report and help you dispute errors. They can also guide you toward free educational resources to boost your financial know-how.

What’s a Debt Management Plan?

A woman uses a calculator, a notepad and her laptop to work on her finances.
Aileen Perilla/The Penny Hoarder

A debt management plan rolls all your debts into one monthly payment to make it easier to manage.

If you choose to use one, your credit counselor’s organization will set up the plan and work with your creditors to make sure everyone gets paid on time.

Pro Tip

After you set up a debt management plan, the credit counselor will work with your creditors to stop them from pursuing collection efforts or charging late fees while you are on the plan.

Debt management plans usually don’t reduce your debt, but they may reduce your interest rates by as much as half or extend your payment timeline to make paying your debt more manageable.

How Much Does It Cost for Credit Counseling?

You can expect a setup fee of no more than $50 to participate in a debt management program and pay your debt through your credit counselor’s organization. Monthly fees are normal for debt management plans, but they also shouldn’t be more than $50.

Pro Tip

A credit counseling agency must disclose upfront whether it can provide services at a free or reduced rate, depending on your ability to pay.

Don’t plan to keep racking up debt, though — your lines of credit will be closed or suspended while you’re in a debt repayment plan.

Does Debt Counseling Hurt Your Credit Score?

Initiating a debt management plan could cause a dip in your credit score, because it indicates you’re struggling with your finances. But as you build a payment history through the plan, your score will likely improve.  

What Other Options Do I Have?

You don’t have to be seeking a debt management program or headed toward bankruptcy (debt counseling is required before filing Chapter 7 or Chapter 13 bankruptcy) to work with a credit counselor.

But before resorting to a for-profit debt settlement company, there are alternatives to credit counseling.

Financial Adviser

If you can afford the typical hourly rate, a financial planner can design a blueprint to help you get out of debt. Financial planners won’t negotiate your balance or interest rates, but meeting with one won’t affect your credit score, either.

As a bonus, if you find a financial planner you like, you can continue to work with them after you’re out of debt and want to start strategizing for how to save for your future.


If you’re not sure whether you’re ready to talk to someone about your credit or debt concerns, you can take steps to try to improve your financial situation on your own.

You may be able to consolidate your debt or negotiate your credit interest rates. Or you may simply need a nudge to choose a debt payoff method — snowball vs. avalanche, anyone? — and stick to the plan while you make steady progress.

Lisa Rowan is a former senior writer at The Penny Hoarder. Staff writer Tiffany Wendeln Connors contributed to this post.