When Is Credit Counseling a Good Idea?

Erin OsterhausFebruary 15, 2023


Sketch of credit cards

The average consumer debt in America reached $96,371 in 2021. That figure includes credit card debt, personal, auto, and student loans, as well as HELOCs and mortgages. While carrying some debt as a consumer in the U.S. is perfectly normal and can even help establish a history of good credit, too much debt can become a significant burden that is difficult to escape.

Credit counseling can help ease that debt burden, but it might not be right for every situation. Here, we’ll review what credit counseling is, when you might need it, and how to sift through your options to find the services that will best meet your financial needs.

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What is Credit Counseling?

Credit counseling, or consumer credit counseling as it is often called, is usually offered by nonprofit organizations whose goal is to help individuals and families find solutions to their financial struggles. This type of counseling is typically free and can provide you with the tools or resources you need to get your financial situation under control. Consumer credit counselors are professionals trained in the areas of budgeting, consumer credit, and money and debt management. Their services are useful for anyone that is finding it hard to pay off debt or get a handle on their overall financial health.

As an important note, you shouldn’t confuse credit counseling with debt settlement. In contrast to credit counseling services, debt settlement companies are usually for-profit credit counseling businesses that charge a fee for their services. These for-profit companies often help you arrange debt settlement with creditors and debt collectors.

When Should I Use Credit Counseling?

If you find that your debt has spiraled out of control, credit counseling services might be able to help you. Some of the most common scenarios for when credit counseling makes sense include:

  • Your monthly debt payments are overwhelming and you find yourself struggling to pay your monthly credit card and/or mortgage payment
  • You’re considering bankruptcy, or need help setting and meeting your financial goals
  • You’re considering loan consolidation for unsecured debt (e.g., credit cards and personal loans)
  • You’re thinking of purchasing a home, but are worried that your debt or low credit score might prevent you from getting a mortgage
  • You’re struggling with debt and need help navigating debt relief, and you also want to avoid scams and damage to your credit score

How Do I Find Credit Counseling Services?

There are a variety of resources available to help you find a reputable consumer credit counseling. The Consumer Financial Protection Bureau (CFPB) recommends that you start your search with the Financial Counseling Association of America or the National Foundation for Credit Counseling. If you’d prefer to work with a Texas-based counselor, the United Way of Austin has a great list of Central Texas resources, including:

There are many organizations out there, each offering a variety of services. Before choosing one, do a little research to find one that fits your specific needs. And while these websites can help you narrow down your search, be sure to do your homework and be aware of the red flags of potential scammers.

How Do I Avoid Scams?

Credit counseling is a legitimate and safe option for consumers who need to get a handle on their finances. However, it’s important to be able to tell the difference between lawful credit counseling agencies and scammers that are looking to take advantage of consumers in a vulnerable position.

To help you determine if the credit counseling agency you’re considering is legitimate, keep an eye out for the following red flags to avoid identity theft or paying money to a fraudulent organization.

  • They ask for your information upfront. A legitimate credit counseling agency should offer free educational information about the services they offer without requesting your financial details.
  • They charge for their services. The CFPB advises against using companies that charge you for information and educational materials.
  • They reach out to you first. If you receive unsolicited phone calls or mail about debt relief services, it’s probably a scam. A reputable organization will not contact you first.
  • Employees earn commissions. If an employee tries to push an individual plan on you without thoroughly evaluating your situation, it might be because they are paid more to do so.

How Does Credit Counseling Work?

After you find a credit counseling agency that suits your financial situation, the next step is getting paired with a certified credit counselor. You may speak with your counselor on the phone, online, or in-person. The counselor will get to know you and assess your financial situation during your credit counseling session.

Be prepared to answer questions about the economic challenges you’re facing, as well as the goals that you’d like to meet. It’s helpful to have the following documents or information handy to answer the counselor’s questions:

  • A list of your current monthly expenses, including what you spend on food, utilities, loans, and other regular bills.
  • Monthly income estimates or pay stubs.
  • Credit card statements that show interest rates, monthly payments, due dates, balances, etc.

After your initial conversation, your counselor will perform an analysis of your financial situation and offer potential debt solutions and feedback on how to best address your issues. A credit counselor may:

  • Help you create a budget.
  • Help you obtain a copy of your credit report.
  • Advise you on managing debt and money.
  • Point you towards more educational material or resources.
  • Build a debt management plan for student loans or credit card debt.

Take Advantage of the Help Available

When it comes to consumer debt, know that you’re not alone. Across the nation, millions of individuals are struggling with debt repayment in turbulent economic times. Credit counseling services are an excellent resource if you find yourself in dire straits, or even if you just want to improve your long-term financial health. These agencies usually offer free or low-cost counseling and have consumers’ best interests at heart. If you feel overwhelmed by your current financial or credit situation, take advantage of the services they offer, and start your journey toward financial health today.

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Erin Osterhaus

Erin is a personal finance writer based in Austin, Texas. Her work has been featured on TechRepublic, Yahoo Small Business, and Entrepreneur.com. She’s been passionate about helping others manage their money since she successfully paid off $60,000 in student loans in four years. When she’s not writing, Erin loves reading, studying languages, and spending time with her family.