Credit Counseling: What It Is And How To Find A Nonprofit Agency
The Short Version
- A credit counselor goes through your income, your bills and your debts with you and helps you build a budget.
- A Debt Management Plan is 1 monthly payment to the agency, and the agency pays your credit card companies.
- It can lower your interest rates, and it usually closes the credit cards in the plan.
- Search for a nonprofit Credit Counseling Agency through the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA), and ask about every fee before you agree.
What Credit Counseling Is
A credit counselor sits down with your numbers: what comes in, what goes out and what you owe. Together you build a budget and look at your options. At a nonprofit agency the first session is usually free or low cost.
Counseling is a conversation, not a contract. You can talk to a counselor and decide to keep doing it yourself.
What A Debt Management Plan Is
A Debt Management Plan is one of the options a counselor may offer. You make 1 payment a month to the agency, and the agency pays your credit card companies. The agency asks each credit card company for a lower interest rate or for fees to be waived. A plan often runs 3 to 5 years.
It is a repayment plan for the debt you already have. It is not a new loan, and it does not erase what you owe.
How It Can Help
- A lower interest rate means more of each payment goes to the balance.
- 1 payment a month instead of a stack of due dates.
- Someone checks in with you while you pay it down.
What It Costs You
- The credit cards in the plan are usually closed. You stop using them while you pay.
- There can be a setup fee and a monthly fee. Ask for every fee in writing.
- Not every credit card company agrees to lower its interest rate.
- Miss a payment and the lower interest rate can end.
- Closing credit cards can lower your credit score for a while, because it changes your utilization.
How To Find A Reputable Nonprofit Agency
Start your search with the 2 national groups that set standards for their member agencies. Each has a search on its site.
- National Foundation for Credit Counseling (nfcc.org)
- Financial Counseling Association of America (fcaa.org)
“Nonprofit” does not always mean free, and it does not always mean good. Before you agree to anything, ask:
- Are your counselors certified?
- What are all of your fees, setup and monthly?
- What happens to my credit cards?
- Do you report anything to the credit bureaus?
- Can I get the plan in writing before I agree?
Walk Away If You Hear This
- A fee before they do anything for you.
- A promise to make your debt disappear.
- “Stop paying your credit card companies and pay us instead.”
- Pressure to sign today.
Next Steps
- Ask for a lower interest rate yourself first.
- Ask about a hardship program.
- Put your debts in order in the debt snowball calculator.
Questions People Ask
Will credit counseling hurt my credit score?
Talking to a counselor does not. Closing the credit cards in a Debt Management Plan can lower your score for a while. Paying on time every month is what builds it back.
Is credit counseling the same as debt settlement?
No. In a Debt Management Plan you pay back what you owe, often at a lower interest rate. Debt settlement asks your credit card companies to take less than you owe, and it comes with its own costs and risks.
Do you recommend an agency?
No. I don't name an agency and I don't help you enroll. I show you where to search and what to ask. If a link on this page ever pays me, it is labelled.