What Is Credit Counseling and How Does It Work?

Learn about this option for managing debt

There’s always a chance that financial plans could fail, and debt or risk of bankruptcy may rise. If that happens, one possible option to get your finances back on track is to seek credit counseling. 

Here's what you need to know about credit counseling and why it may be a potential option if you’re struggling financially. 

Debt Help From Your Credit Card Company

First of all, if you think you may miss a credit card payment, contact your credit card company directly. They may be willing to work with you to get back on track. 

Even if you choose to work with a credit counselor, credit card companies may appreciate knowing that you are taking steps to manage your debt. 

What Are Credit Counseling Agencies and How Are They Different From Debt Settlement Companies?

Credit counseling agencies are dedicated to find manageable ways to reduce and eventually eliminate your debt. “Credit counseling organizations are usually non-profit organizations,” the Consumer Financial Protection Bureau (CFPB) writes. “Typically, their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting.”

“Debt settlement companies,” the CFPB writes, “offer to arrange settlements of your debts...for a fee." The CFPB offers a side-by-side comparison of credit counseling agencies and debt settlement companies.

Where Can I Find a Credit Counseling Agency?

There are a few resources you can use if you are interested in trying or learning more about credit counseling. 

  • Call the National Foundation for Credit Counseling (NFCC) at 1-800-388-2227.
  • Check the NFCC website.
  • Check the Better Business Bureau (BBB) to look up any credit counseling company you are considering to see if they are highly-rated for their services and customer care. 

As you select a credit counseling agency you may consider one that offers a range of services including debt management and budget counseling. At the same time, consider avoiding any that push a single plan as your only or best option before they’ve even reviewed your financial situation.

How Does Credit Counseling Work?

The process of credit counseling varies based on the agency you work with and your own individual needs. Typically, the first step is that credit counselors set up meetings that last 30 minutes to an hour, either in-person at their office, in your home, or over the phone. 

During the first credit counseling meeting, these advisors will typically ask in-depth questions about your financial situation. They want to get to know your debt, but they also likely want to get to know you. Because it’s unlikely that you fell into debt overnight, they’ll probably ask questions about the steps that led to your current situation. They may ask what future roadblocks there may be that could prevent you from reaching your financial goals. These questions should help the credit counselor tailor a plan for you. 

Consider preparing for your credit counseling meeting beforehand by organizing bills, receipts, and pay stubs. This should make it easier to get a clear picture of your financial situation. Once your credit counselor has a thorough understanding of your finances they should be ready to create steps to reduce debt, save money, and improve your overall financial picture. Some services that might help some people might not work for others. This is why credit counselors take multiple approaches to reduce debt: so they can try to find a plan that works for their clients. 

Debt Consolidation

One approach credit counselors may offer is debt consolidation. This can be a useful tool if you owe money to multiple creditors and feel overwhelmed by the number of payments you need to make each month. Your credit counselor might work to close certain accounts and move some payments to a few accounts that you can pay off over time. 

Debt Management Plans

A credit counselor may also offer a debt management plan that allows you to simplify your payments. “Credit counselors may help you organize a ‘debt management plan’ for all your debts,” the CFPB writes. “Under a debt management plan, you make a single payment to the credit counseling organization each month or pay period. The credit counseling organization then makes monthly payments to your creditors.”

Keep in Mind

Credit counseling won't cure your financial troubles overnight. You may have to meet with a credit counselor several times over the course of a few months, agree to make the changes they suggest and even keep meeting with them as your financial situation improves to help you stick to your plan. But knowing that credit counselors are one option for creating a financial plan may make you feel a bit more secure in uncertain financial times and help you get back on--and stay on--track.

We hope that you found this helpful. Our content is not intended to provide legal, investment, or financial advice or to indicate the Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional. This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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