When To Seek Debt Counseling

Determine whether you're a candidate for credit counseling

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Declaring bankruptcy isn't the only way to make a financial recovery; you also can consult a debt or credit counseling service to help you manage your debt. Receiving debt counseling from a credit counselor can help you pay off your debt while avoiding the negative effects of bankruptcy, which impact your ability to get new credit (or to qualify for decent interest rates) for several years. Here, we'll dive into debt counseling and help you determine whether it's a potential solution for getting out of debt.

What Is Debt Counseling?

Debt counseling, also called “credit counseling,” is provided by trained counselors who can help you create a budget, review your credit report and scores, and even create a debt management plan to pay off your debts over time.


You can find reputable debt counselors through nonprofit agencies such as the National Foundation for Credit Counseling (800-388-2227) and the Financial Counseling Association of America (800-450-1794).

How Debt Counseling Works

Credit counseling services match you with a credit counselor who can provide a personalized action plan to address your financial challenges and help you reach your goals. After consultation, you can opt to have a credit counselor help you set up a payment agreement with your creditors under a debt management plan (DMP). You'll make one lump-sum payment to the debt counseling agency, who then will pay your creditors on your behalf.


The debt counselor may be able to negotiate a lower interest rate or get your finance charges reduced or waived.

While your participation in a debt management plan may be reflected on your credit report, the program itself shouldn’t have a negative impact on your credit score. However, you may need to close credit accounts as part of your DMP; in that case, your credit utilization ratio could be impacted. A higher credit utilization ratio could ding your credit score. That said, your credit score might improve once you bring accounts into good standing and continue to make timely payments.

The Difference Between Debt Management and Debt Settlement

It’s important to note that a debt management plan is different from debt settlement. Nonprofit organizations offer debt management designed to help you pay off all your existing debt. Debt settlement is offered by for-profit companies that negotiate with your creditors to accept less than what you actually owe in exchange for writing off your remaining debt.

If the debt settlement company succeeds in their negotiations, you owe it a fee, and you may face income taxes on any amounts forgiven by your creditors. It’s also likely debt settlement will have a negative impact on your credit score.


You may not be allowed to open any new credit card while you're on a debt management plan. In addition, any credit cards you include in your debt management plan may be closed. Using your credit card could result in termination of your plan.

When to Consider Credit Counseling

If you're having trouble making your debt payments, you may consider credit counseling, even if you're currently past due on your balances. Even if you don't enroll in a debt management plan, a credit counselor can help you create a budget and give you advice on managing your debts. Here are a few additional things to help you decide whether credit counseling is right for you.

Do You Need Professional Advice?

Your initial credit counseling session will provide information for managing your finances and your debt. You may be able to walk away with more clarity about your options in under an hour.

Do You Have a Lot of Unsecured Debt?

A debt management plan helps you repay unsecured debts like credit card debts. If you need help negotiating a lower payment on secured debts, such as a mortgage or auto loan debt, counseling may not be the ideal solution.

Are You Behind on Payments?

Working with a licensed credit counseling agency may allow you to bring your accounts current again, without having to pay the full past-due balance in one lump sum. Bringing your accounts current will help prevent calls from your creditors and could improve your credit score.


Debt counseling can only help with collection accounts if the collection agency agrees to participate in the debt management plan, which may not happen.

Do You Want to Consolidate or Lower Your Monthly Payments?

Enrolling in a debt management plan allows you to stop making separate payments to each of your creditors and instead make one payment to a credit counseling service that then will distribute the money to your creditors. You also may get the benefit of a lower monthly payment, adding some flexibility in your monthly budget.

Finding a Credit Counselor

Reputable debt counseling services are offered by nonprofit organizations, including credit unions, universities, and government housing agencies. It's important to check the qualifications of any credit counselor you're considering. Online reviews, like those from the Better Business Bureau, can help you vet credit counseling agencies before you make a decision.


The United States Trustee Program maintains a list of credit counseling services that offer pre-bankruptcy counseling.

Be sure you're dealing with a trustworthy company by asking a few questions, including:

  • What services do you offer?
  • Where do you provide services (at a local office, online, by phone, or in person)?
  • What, if any, setup and ongoing fees do you charge for services?
  • What is the payment schedule for fees?
  • Do you offer any free educational resources or workshops? (Reputable credit counseling agencies should offer free educational materials)
  • Are your counselors accredited or certified? By which organization?

Alternatives to Debt Counseling

There are other approaches for managing debt besides using a credit counseling service.

Take a Class

If you don't feel comfortable consulting a credit counselor, enroll in a class that provides information on how to manage debt. Find one at your local community college or university, or online.

Do It Yourself

You may be able to use a few strategies to pay off debt on your own. Start by setting up a budget so you know where your money is going each month. Once you know how much extra money you have in your budget, you can create a plan to pay down your balances. You may also be able to negotiate lower interest rates by calling your creditors directly and asking for one.


If you have good or excellent credit, you might consider taking advantage of a balance transfer card with a promotional interest rate. But be sure you can pay off the debt you transfer during the promotion or that the rate doesn't skyrocket once the promotional period expires.

Start a Group

You can establish a debt management group and recruit members with money management or debt problems so that you can offer support to one another. The group approach adds accountability to your budget and allows you to bounce your concerns and frustrations off others who are going through the same situation.

The Bottom Line

Debt counseling can provide you the professional guidance you need to manage debt without having to declare bankruptcy. It's particularly useful for those who are overwhelmed by the number or size of their debts. If you go with a credit counseling service, find a reputable credit counselor who can truly help you turn your financial situation around.

There are many other options to consider in lieu of a credit counseling service, from financial advisors to do-it-yourself money management. The right debt management strategy for you is one that factors in your financial picture and your willingness to get help from others.

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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. Federal Trade Commission. "Coping With Debt."

  2. Financial Counseling Association of America. "Debt Help."

  3. InCharge Debt Solutions. "What Kinds of Debts Can a Debt Management Plan Help With?"

  4. National Foundation for Credit Counseling. "Debt Management Plans."

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