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Consumer Credit Counseling: What You Should Know

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In a Nutshell

With an array of companies and organizations promising financial independence, it is easy to feel overwhelmed. As many continue to be financially affected in the midst of COVID-19, if you find yourself in unmanageable debt, or you’re just looking to work toward a fresh debt-free start, credit counseling may be a viable path for you.

Written by Attorney John Coble
Updated August 26, 2020

With an array of companies and organizations promising financial independence, it is easy to feel overwhelmed. As many continue to be financially affected in the midst of COVID-19, if you find yourself in unmanageable debt, or you’re just looking to work toward a fresh debt-free start, using a consumer credit counseling service may be a viable path for you.

You’ve Got Debt – Now What?

Bankruptcy isn't the only way to get rid of your debts. Usually, the best place to start your path towards debt relief is by scheduling a free credit counseling session with an accredited, nonprofit credit counseling agency. During your free session, a certified credit counselor will look at your income, expenses, and debts to determine the cause of your financial problems. Based on this information, they will recommend a debt relief plan that best fits your situation. They may recommend a debt consolidation, a debt management plan (DMP), debt settlement, or bankruptcy. There are certain types of debt that can't be dealt with in most bankruptcy courts. It is important to explore all of your debt relief options, partially because these are debts such as tax liens and student loans that cannot generally be eliminated during bankruptcy. Depending on your unique situation, there are alternatives to bankruptcy that may work better for you.

Debt consolidation is usually the best choice for people with a high enough credit score to qualify for a debt consolidation loan. The goal is to get a loan (at a lower interest rate) that is large enough to pay off all your high-interest unsecured debts. By doing this, you will only have one monthly payment and that payment will be lower than the combined monthly payments of your debts before they’re consolidated. 

Alternatively, your credit counselor may recommend a debt management program. This is a good option for people whose credit score isn't high enough to qualify for a debt consolidation loan. DMPs work similarly to debt consolidation loans in that you only make one monthly payment. With DMPs, the payment is made to your credit counseling agency. The agency then distributes funds to the financial institutions you owe, per the terms of your plan. The credit counselor will try to negotiate a better interest rate and lower monthly plan with each of your creditors. Like debt consolidation loans, your single monthly payment should be less than the combined monthly payments for each of your debts pre-consolidation. 

Debt settlements aren't the best option for most people. Debt settlements work best for credit card debt and only if you have enough money to make large lump-sum payments to settle with each of your creditors. Be aware that debt settlements will initially harm your credit.  You can try to settle the debts yourself or you can hire a debt settlement company. However, some of these companies are scams so you should be careful when hiring a debt settlement company.

Understand Your Priorities

Before your meeting with a credit counselor, it's important to gather your bills, paystubs, and bank statements. You’ll want access to any documentation that will enable you to list all your debts. You’ll also need your credit reports from each of the three major credit bureaus. Do not rely on your credit report to determine all of your debts, as some debts aren’t reported to the credit bureaus until they go into collections. Gather your account statements for your reference to make sure you’re not missing anything. This is especially important if you have a lot past due medical bills. 

To create a budget, you must know your income and expenses. Having a budget is the first step to creating a plan to deal with your debts and regain your financial health. Try to plan for what you want to achieve in both the long term and the short term. These life goals will help to set your financial goals. By having completed this process at home, you will have your documentation together for your first counseling session. This pre-meeting process also gives you a good idea of your financial situation and what educational materials you may want to ask for. Your credit counselor will be able to help you create a realistic plan to achieve your financial goals once they review all of your documentation.

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Finding Your Credit Counselor

The first challenge when choosing a consumer credit counseling agency is deciding whether to work with a non-profit organization or a for-profit agency. For-profit agencies are more likely to sell services to you that you don't need.For-profit credit counseling agencies are sometimes called debt relief companies. Other names for these companies are debt negotiation companies or debt negotiation services. These companies may also negotiate debt settlements for their customers. If this is the case, they may call themselves debt settlement companies. Some of these companies have been exposed as scams. It's important to check with the Better Business Bureau and your state’s attorney general's office to see whether any complaints have been filed against an agency you’re interested in working with. It's especially important to perform this due diligence with for-profit agencies. Another part of the research you need to perform is to look at the third-party online reviews of the agency. That is, don't look at reviews on the agency's website. Do look at reviews about the agency from third-party websites like Google and Yelp.

To get unbiased opinions for your best course of action, it's best to begin your quest for debt relief with an accredited nonprofit credit counseling agency. To increase the likelihood of meeting with a good credit counselor, it's a good idea to make sure the agency is a member of the National Foundation for Credit Counseling (NFCC). The NFCC requires strict quality, financial, and ethical standards for its members. These agencies always provide free credit counseling, even if some of their other services come with a cost. 

Most nonprofit credit counseling agencies provide debt management plans in addition to standard credit counseling. These agencies do charge a fee for debt management plan management for those who don’t qualify for a fee waiver. These agencies differ in how they provide their services. Some agencies may conduct their meetings by phone or internet only. Other agencies may only provide in-person services. Some agencies will provide all three meeting methods. Outside of debt management services, there is a range of services that different CCCS provide. Different agencies provide services such as budget counseling, bankruptcy counseling, financial counseling, pre-rental housing counseling, foreclosure prevention counseling, student loan counseling, first-time home-buyer counseling, and more. Make sure the agency you choose provides the services that you need.  Whichever agency you choose, your initial consultation should be free.

Finding Your Path to Debt Relief Through Consumer Credit Counseling

Once you decide to use a credit counseling agency's services, make sure you understand your contract with the company. You need to know what services the company plans to provide to you for the fee you're paying. If there is anything you don't understand, you’ll need to ask questions until your understanding is clear.


Credit counseling is a great start on the road to debt relief. It's important to research different credit counseling agencies to make sure they provide the services that you need. It's also a good idea to get your bills, paystubs, and bank statements together before the first meeting with your credit counselor. Attempting to create a budget before your first meeting will help you to understand your challenges. Your credit counselor looks at cases such as yours every day. This experience will help the counselor to see possible solutions that you might not have considered. Once you have this information available to you, you’ll be able to make an informed decision about how best to move forward. 

Written By:

Attorney John Coble


John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

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