Do you have too much high-interest debt? Credit counseling may help.
If you are struggling to pay off large amounts of debt or need to make a plan to reach your financial goals, credit counseling may be a good option for you. A credit counseling service can provide you with guidance and services to help get your finances back on track.
This guide will explain the basics of credit counseling, including:
- What is credit counseling?
- What does a credit counselor do?
- Who can benefit from credit counseling?
- How do I choose a credit counseling agency?
What is credit counseling?
Credit counseling provides consumers with advice and guidance for managing their debts. Credit counseling agencies are usually nonprofit organizations that offer several different services to consumers.
“Credit counseling helps consumers struggling with debt by providing a clear understanding of their financial situation,” says Amy Maliga, financial educator at Take Charge America, a nonprofit credit counseling agency based in Phoenix. “Counselors undergo extensive training to help consumers understand and address their credit card debt.”
According to the Consumer Financial Protection Bureau, reputable credit counselors should be certified and trained in the areas of consumer credit, money and debt management, and budgeting.
Credit counseling can help consumers take action, improving their finances. Some of their guidance may include the following:
- Using debt consolidation to pay off high-interest credit card debt
- Creating and managing a budget
- Developing plans to help reach important financial goals.
What does a credit counselor do?
Most credit counseling agencies offer assistance over the phone or online. A credit counselor often starts with a one-hour session to gather general information and details about your finances, such as income, expenses, and debts.
“Everyone who completes credit counseling receives a personalized budget and recommended solutions for addressing credit card debt, which may include a debt management plan,” Maliga explains. “Together, the client and counselor will work out a budget, and the counselor will recommend a debt solution.”
A credit counselor can also help with a plan to meet financial goals, such as buying a house or saving for retirement.
In addition to free services, nonprofit credit counselors also offer fee-based services, such as:
- Debt management plans
- Bankruptcy counseling
- Student loan counseling
- Housing counseling
Important tips:
- Credit counseling services are confidential.
- Legitimate credit counseling services will not affect your credit score.
- A reputable credit counseling agency will not pressure you to choose a debt management or other plan.
- Fees for some services can vary by the credit agency, your state, and individual financial need. Make sure to check the costs of any ongoing services before you agree to them.
It’s important to find the right service for your financial situation. A credit counselor can help you choose the method that best suits your needs.
Who can benefit from credit counseling?
Credit counseling isn’t just for people who have large amounts of debt. If you’re dealing with unexpected bills or expenses, working with a credit counselor might help you figure out what to do next.
Credit counseling can also assist with other situations. You might want to seek credit counseling to:
- Understand your credit score
- Manage multiple debts that are hard to track
- Relieve financial stress
- Improve your financial literacy
- Plan for student loans
- Prepare to buy a house
A professional credit counselor can help you explore the available options for your specific financial situation.
How do I choose a credit counseling agency?
If you decide that credit counseling may be right for you, start by contacting some national nonprofit credit counseling services or agencies in your area. They should be willing to provide you with free information about their services without requiring any information about your financial situation.
Ask questions before deciding on an agency. The Federal Trade Commission recommends asking the following:
- What types of services do you offer?
- How much experience do you have?
- What are your fees? (Your contract should outline the services you’ll receive, along with information on canceling your agreement when the time comes.)
- Are you licensed to provide debt counseling services?
- Do you have a system in place for keeping personal identifying information secure?
Here are some other tips to keep in mind while searching for a credit counseling service:
- Ask the agency for three or more client references.
- Look for agencies that are members of the National Foundation for Credit Counseling.
- Check with the office of your state Attorney General to ask if there are consumer complaints about an agency.
- Be cautious of debt counseling scams.
- Be aware that for-profit credit repair or debt settlement companies are not the same as nonprofit credit counseling agencies. These firms can provide misleading information, or worse, charge significant fees and damage your credit.
- Be aware that for-profit credit repair or debt settlement companies are not the same as nonprofit credit counseling agencies. These firms can provide misleading information, or worse, charge significant fees and damage your credit.
- You have rights when it comes to debt collectors. It is illegal for debt collectors to harass or threaten you. The CFPB’s recent Debt Collection Rule also clarifies how debt collectors can communicate with you.
Finally, remember that not all services from reputable nonprofit credit counseling agencies are necessarily free. Be sure that you understand the fees involved before committing to a debt management or other credit counseling service.
Another debt management option
The average U.S. household carries roughly $165,000 in debt.1 It’s not surprising that many people feel overwhelmed and aren’t sure how to improve their financial health or where to start the process.
Consulting a debt counseling service to learn how they can help is one way to relieve the pressure.
A personal loan may also be an option for managing debt. Consolidating higher-interest debts into one fixed-rate loan 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:
- One set regular monthly payment to manage
- Potentially lower interest rate than the ones on your current debts
- Fixed interest rate
- Variety of repayment terms to choose from, typically ranging from three to seven years, so you can find a repayment term with a monthly payment that fits your budget
- No origination fees or prepayment penalties from some lenders, including Discover® Personal Loans
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?Learn about Debt Consolidation Loans
