Consumer Credit Counseling

What to expect when you work with a certified credit counselor.

Consumer credit counseling services exist to help consumers who are struggling to get out of credit card debt. When a person can’t get out of debt on their own but wants to avoid bankruptcy, counseling is there to provide solutions. Consolidated Credit is one of the nation’s largest nonprofit credit counseling services. We’ve counseled over 10 million people since 1993. This guide can help you understand how the process works and how it can help you.

What is credit counseling?

A credit counseling service is not a debt solution in and of itself. It’s a service intended to help you identify the best possible debt solution for your needs. In that sense, counseling is essentially a consumer advocacy service. A credit counselor is there to help you make informed choices on the best way to get out of debt, based on your unique financial situation.

How does credit counseling work?

Step 1: Make a free, no-obligation, toll-free phone call

Almost all counseling sessions occur over the phone. This allows you to speak directly with a certified counselor, so they can ask questions and understand your situation.

First, they will also ask about how you got into debt and what financial challenges you’re facing. This is crucial because it helps the counselor understand the root cause of your financial challenges. That way, they can help you make effective plans to get out of debt – and to stay that way.

Step 2:  Get a free debt and budget evaluation

Next, you and your credit counselor will dive into your financial situation with a full debt and budget analysis. This takes about 30 minutes to an hour to complete.

The counselor will ask for details about your debt – how much you owe, who you owe, and what your interest rates are.

They’ll also gather information about your income and expenses. This is necessary, so the counselor can understand how credit card debt may be factoring into the financial difficulties that you’re facing

They’ll also ask for the last four digits of your Social Security number, so they can do a soft credit pull. This means they’ll check your credit report to see where your credit stands. This soft pull doesn’t affect your credit score.

Step 3: Customize a plan to get out of debt

Finally, the counselor will help you understand your options for getting out of debt. Credit counseling services can help you set up a debt management plan. However, as long as you work with a nonprofit credit counseling agency, they won’t push you into that solution. By law, if there are other solutions that would work better in your situation, they must recommend it. They can advise if you’d be better with a debt consolidation loan or if you may be better off filing for bankruptcy.

If a debt management program is your best option for getting out of debt, the credit counselor will help you find monthly payment that works for your budget. Then they get to work with your creditors to reduce or eliminate the interest rates applied to your debt and stopping penalties and fees. This makes it faster and easier to pay off your balances.

This map shows how many people we counseled in 2019 and how many of those went on to enroll in a debt management program:

How much does credit counseling cost?

First credit counseling session Free
Debt management program Fees vary by state, capped at $79 nationwide

With nonprofit credit counseling services, the initial counseling session is always free. You are not obligated to sign up for anything. That means you can get an expert opinion on your debt and the best way to get out of it without incurring another bill.

Once you decide to enroll in a debt management program, there are setup and monthly administration fees. Nationwide, those fees are capped at $79, but most people end up paying about $40. These fees are relatively low compared to other solutions, like debt settlement.

How consumer credit counseling impacts your credit

As long as it’s done correctly, credit counseling and enrolling in a debt management program should not negatively impact your credit. The credit check done during your free counseling session is a soft pull, so the credit inquiry will not have any negative effect.

Even if you decide to enroll in a debt management plan, it should still have a positive or neutral effect on your credit. Since your creditors agree to accept reduced payments through the credit counseling agency, you build a positive payment history on your credit report with each monthly payment you make. Paying down your balances also improves your credit utilization ratio, which is the second biggest factor in calculating your credit score.

What to look for to find the best credit counseling service

Credit counseling agencies are not created equal. The fees may be the same, but the services can differ greatly.

  • Make sure the agency is rated highly by the Better Business Bureau.
  • Check consumer reports and independent third-party reviews online.
  • Make sure the organization is a member of an accredited trade association. Consolidated Credit is a proud member of the Financial Counseling Association of America (FCAA), formerly the Association of Credit Counseling Professionals (ACCPros).
  • Find an agency that has a proven track record of working with the creditors that you have accounts with.
  • Ask what financial education materials they offer. A good agency will help you learn better money management skills, so you can avoid challenges with debt in the future.
  • Then get a feel for the company in your free credit counseling session. If you don’t feel comfortable and confident in the service, remember that you’re under no obligation to sign up for anything

FAQ

Can I complete a counseling session online?

You can start the process online by completing a free debt analysis form. This will provide all the basic information that the counselor will need to complete your free session. However, after that, you will need to talk directly to the credit counselor. That’s easiest over the phone.

After you enroll in the program, you’ll be able to track your progress and communicate with the client services team through Consolidated Credit’s online members portal.

Does credit counseling work for debt collections?

Yes. Although it’s primarily intended for debts that are still with the original creditors, this service can help with collections. It may also be able to help with unpaid medical bills, unsecured loans including debt consolidation loans, and even some payday loans. The program does not work for debts that have collateral, such as your mortgage or auto loan, or for student loan debt.

Do my spouse and I have to go through counseling together?

That depends on your accounts. If you hold accounts jointly, then you would need to go through credit counseling and debt management program enrollment together. If you maintain separate accounts and only wish to enroll your debts, then you can complete the process without your partner.

Get more information on financial counseling for couples »

Is credit counseling the same as bankruptcy counseling?

No. When you file for bankruptcy, you are required to go through a specialized counseling program known as pre-bankruptcy counseling. Pre-bankruptcy counseling is a required 60 to 90-minute session that has a fee of around $50. Fees vary by state and may be waived if you can’t afford to pay. But this is different from the free credit counseling session that you receive through this service.

Contributors :
April Lewis-Parks [email protected] Director of Education and Corporate Communications
Meghan Alard [email protected] Financial Literacy Specialist