Using a Consumer Credit Counseling Service

Get a handle on your finances, but don't fall victim to a scam

An older couple meets with a credit counselor to review their debt relief options.

Luis Alvarez / Getty Images

Some people live paycheck to paycheck and find themselves worried about overdue bills. When credit cards, medical bills, or loans are paid late (or not at all), the result may be a phone call from a debt collector. 

Importance of a Budget

If you struggle with learning how to develop a good budget so you can get your debts paid on time each month, you may consider using a credit counselor to get back on track. Consumer credit counseling services are nonprofits that will help you find a workable solution to financial problems. However, some nonprofit credit agencies charge excessive fees that are not applied to debt reduction.

When considering a credit counselor, it's important to use caution. Be careful and know what to look for to find legitimate credit counseling services that will reduce—not add to—your debt.

How Does Consumer Credit Counseling Work?

Reputable agencies provide money-management advice, can help you with preparing a budget, and offer free educational workshops and resources. Good counselors are certified and provide money and debt management specialists to help you.

The initial counseling session can last at least an hour with follow-up sessions scheduled if necessary. The counselor will discuss your financial situation with you to develop a personalized plan for tackling your debt and getting your finances in shape.

Depending on the amount of your debt, the counselor might recommend a debt management plan where you make monthly payments to the service, and they pay your creditors. The counselor will negotiate late fees, lower interest rates, and term extensions with your creditors.

Not an Alternative to Bankruptcy

Do not sign up with an organization that claims their services are a bankruptcy alternative. These agencies may claim that their services do not impact your credit, and that you should stop paying your creditors and instead send that money to the agency. That's a bad idea for three reasons.

First, late payments can be devastating to your credit score. A low credit score can make it more difficult to qualify for new credit later, and it can also impact your ability to rent an apartment or get a cell phone in your name.


Negative marks, including late payments, can remain on your credit history for up to seven years. 

Second, there's no guarantee that creditors will accept a partial payment. They may refuse any terms that a bankruptcy alternative proposes, leaving you potentially in worse shape than when you began. Finally, late fees and interest accrue on unpaid balances. That's money you'd have to pay, on top of any exorbitant fees the credit agency itself may be charging. 

How to Select a Consumer Credit Counseling Service

When comparing consumer credit counselors, there are a few things to keep in mind. Consider it a red flag if a credit counseling service does not send free information about the organization before requesting details about your situation.

Check the Better Business Bureau, the local consumer protection agency, the National Foundation for Credit Counseling, and the Financial Counseling Association of America about the legitimacy of a list of potential counseling agencies. These organizations can identify any that have had consumer complaints. However, not having a complaint is no guarantee that they are legitimate.

As a follow-up resource, contact the United States Trustee Program for a list of approved credit counseling agencies that can provide pre-bankruptcy counseling. You want an organization that has a range of services, such as budget counseling and debt management classes. You want a plan for managing debt, not a quick scheme to get rid of debt obligations.


Steer clear of agencies that have a debt management plan (DMP) as the only option, as they should provide other counseling services as well. Plus, organizations should not charge for educational materials or information about the service itself.

Once you've narrowed your list, ask a credit counseling service the following questions: 

  • What are your services?
  • Do you provide free information?
  • Do you charge fees? Get specific pricing for set-up or monthly fees, if applicable.
  • How can you help me avoid future debt problems?
  • Is this service licensed to provide financial management services in the state?
  • Are your counselors certified and trained by a non-affiliated party?

If you run into a credit counseling service that's reluctant to answer your questions—or say they can't give you information until you provide your bank account information or pay a fee—that's a warning signal. They may not be reputable. In that case, you're better off saying thanks, but no thanks to their services. 

Deciding to Use a Consumer Credit Counseling Service

Speaking with a consumer credit counseling service and becoming more acquainted with their services is a great first step toward figuring out if credit counseling is right for you. Even though you can contact creditors and negotiate the payment terms of your accounts on your own, working with a credit counselor can provide valuable guidance by helping you determine the best approach for managing your debt. 

Similarly, many credit counselors help you establish a greater sense of discipline in paying closer attention to your spending, encouraging you to learn how to stay on target with your financial goals. If you find managing your debt to be unfamiliar and intimidating territory, working with a credit counselor may be the support system you need to stay on track.

Understand the Contract

If you decide to use credit counseling services, read the contract agreement before you sign. The contract should disclose fee or contribution amounts, a description of services, an estimated payoff schedule, termination provisions, and the dispute resolution process. Ask for clarity on any provisions you don't understand. 

The desire for financial freedom is something many people share. If you decide to work with a consumer credit counseling service, make sure their goals match yours, and you are not tied to a scam that can put you into a bigger financial hole.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. The United States Department of Justice. “Frequently Asked Questions (FAQs) Credit Counseling: How Long Should a Typical Counseling Session Last?

  2. Federal Trade Commission. "Choosing a Credit Counselor."

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