Choosing a Credit Counselor

Living paycheck to paycheck? Worried about debt collectors? Can’t seem to develop a workable budget, let alone save money for retirement? If this sounds familiar, you may want to consider the services of a credit counseling agency. Usually nonprofit, these agencies work with you to solve your financial problems — sometimes for free. Credit counseling agencies may offer educational materials and workshops, or help you develop a budget. Many agencies offer services nationwide through local offices or the Internet. Look under "credit counseling" in your telephone directory or your Internet search engine.

Consider All Of Your Options

Credit counseling isn't for everyone. Make sure you consider other options, including developing a reasonable and affordable household budget and savings plan and negotiating individually with your creditors. Most important, you need to understand what types of debts you have. Are you having trouble with secured debt (such as a home mortgage or car loan) or mainly with your unsecured credit card debts.

Credit counseling won't help lower your secured debts. However, a debt management plan might help you lower your unsecured debts, making your home and car payments more affordable. If you are in danger of losing your home or car, bankruptcy may be your best option.

If you have mainly unsecured credit card debt and your monthly bills are completely unaffordable, a debt management plan may not lower your monthly payments enough to allow you to pay off of your other bills, especially if emergencies arise. Chapter 7 bankruptcy may be your only viable option.

A debt management plan is most likely to help you if you are in trouble with unsecured debt and can make payments on those debts and still afford your priority debts, such as house payments, rent, and utilities. However, you should factor in any fees you will have to pay to the credit counseling agency. You may also benefit from the convenience of sending only one payment to the agency rather than making multiple payments to creditors, particularly if you have many different creditors.

Choosing an Agency: Questions to Ask

If you want to work with a credit counseling agency, shop around and interview several. Making the wrong decision could cost you dearly. You do not need to provide personal financial information in order to find out the basics about an agency. Don't just respond to advertising. Seek out an agency that will offer you a range of counseling options, not just enrollment in a debt management plan. The more options the agency offers, the more likely they will be able to offer you assistance that will fit your needs.

Here are some questions to ask. Check with your state Attorney General, local consumer protection agency and the Better Business Bureau to find out if consumers have filed complaints about the provider you are considering. Any reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.

Services and Fees

  • What services do you offer?
  • Do you have educational materials? If so, will you send them to me? Are they free? Can I access them on the Internet?
  • In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?
  • What are your fees? Do I have to pay anything before you can help me? Are there monthly fees? What’s the basis for the fees? Are any fees voluntary? Do you lower fees for customers in serious financial hardship? Will you give me a specific quote of fees in writing?
  • What is the source of your funding?
  • Will I have a formal written agreement or contract with you?
  • How soon can you take my case?
  • Who regulates, oversees, and/or licenses your agency? Is your agency audited?
  • Will I work with one counselor or several?
  • What are the qualifications of your counselors? Are they accredited or certified? If not, how are they trained? Are employees paid more if they sign me up for a debt management plan? (Consider going elsewhere if they say yes.)
  • Will you deal with all of my unsecured creditors and not just those that pay the agency a fee?
  • What assurance do I have that information about me (including my address and phone number) will be kept confidential?
  • Will the counselor help me avoid money problems in the future?

Repayment Plan

  • Is a debt repayment plan my only option?
  • How much do I have to owe to use your services?
  • How do you determine the amount of my payment? What happens if this is more than I can afford?
  • How does your debt repayment plan work? How will I know my creditors have received payments? Is client money put in a separate account from operating funds?
  • How often can I get status reports on my accounts? Can I get access to my accounts online or by phone?
  • Can you get my creditors to lower or eliminate interest and finance charges or waive late fees?
  • How much lower will my monthly credit card balance be and how long will it take to pay off my bills? (Creditors sometime overrule agencies, so don't agree to a debt management plan until the agency has contacted each of your creditors and they have agreed to the plan you were offered.)
  • What if I can’t maintain the agreed-upon plan?
  • What debts will be excluded from the debt repayment plan?
  • Will you help me plan for payment of these debts?
  • Who will help me if I have problems with my accounts or creditors?
  • How secure is the information I provide to you?

Red Flags: Seven Reasons To Reject A Credit Counseling Agency

  1. High Fees. In general, if the set-up fee for a debt management plan is more than $50 and monthly fees are more than $25, look for a better deal. Similarly, if the agency is vague or reluctant to talk about specific fees, go elsewhere.
  2. "Voluntary" Fees that Aren't so Voluntary. Some agencies publicly claim that their fees are voluntary, but don't pass this information on to consumers. Others will tell you that their fees are voluntary, but will put a lot of pressure on you to pay the full fee.

How Credit Counseling Works

When you meet with a credit counselor, you'll be asked to provide information about your income, expenses, and debts. After analyzing and discussing this information with you, your counselor may recommend that you:

  • Continue to handle your finances on your own.
  • Participate in agency education classes.
  • Enroll in a debt-management/repayment plan.
  • Be referred to another organization for assistance.

If you decide to enroll in the debt-management/repayment plan, you will be asked to stop using your charge cards and incurring debt. The counseling agency will negotiate a repayment schedule with your creditors that will generally allow you to get out of debt in two to five years. You'll make one monthly payment to the agency, which will then pay your creditors.

If you are concerned about the effect that credit counseling may have on your credit history, talk to your counselor about it. Some lenders may bring your account current and report it as being paid on time, as long as you stick with the program. Others may report that your account is being repaid through credit counseling or may even report your account as delinquent, both of which can look negative to future creditors. The fact that you met with a credit counselor will never appear on your credit report if you just get budgeting advice and do not choose to enter the debt-management plan.

What you shouldn't expect from a debt counselor is legal advice or detailed advice about filing for bankruptcy. For these, you should talk with an attorney.

Debt Repayment Plans

If your financial difficulties arise from too much debt or an inability to repay your debts, a credit counseling agency may work out a debt repayment plan for you. In these plans, you deposit money each month with the credit counseling agency. Your deposits are used to pay your creditors according to a payment schedule the counselor develops with you.

As part of the repayment plan, you may have to agree not to apply for — or use — any additional credit while you’re participating in the program. A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Some credit counseling agencies charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant charge over time.

A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. A bankruptcy can stay on your report for ten years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments have been missed, or that there are write-offs or other concessions. But a demonstrated pattern of timely payments should help you get credit in the future.

Your debts are either secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, the lender can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset. Examples include most credit card debt, bills for medical care, signature loans and debts for other types of services. Debt repayment plans usually cover only your unsecured debt. If your secured debts are not included in the plan, you must continue to make payments to these creditors directly.

Keep an eye on the agency after you sign up. If you sign up for a debt management plan, don't stop paying your bills until the plan has been approved by your creditors. Make sure that the agency's payments schedule allows your debts to be paid before they are due each month. Call each of your creditors the first month to make sure they have been paid on time by the agency.

For More Information

One source of information about credit counseling is the National Foundation for Consumer Credit (NFCC). The foundation has 1,400 members that provide money management techniques, debt payment plans and educational programs to help consumers learn to budget and use credit wisely. Many of its members are locally managed, nonprofit agencies operating under the name Consumer Credit Counseling Service (CCCS). To locate the nearest NFCC member office, call toll-free, 24 hours a day, 1-800-388-2227 or visit their web site at

The U.S. Consumer Information Center distributes a variety of brochures on credit related issues. To request a Consumer Information Catalog listing these publications, visit the web site at, call 719-948-4000 or write R. Woods, CIC—8C, PO Box 100, Pueblo, CO 81002.

Your local Cooperative Extension Service office conducts educational programs on credit-related issues and produces a variety of educational materials. Check your local government listings in the phone book for the office nearest you or check the Internet at

The Federal Trade Commission has a brochure on choosing a credit counselor. URL:

Although the Federal Trade Commission cannot resolve individual problems for consumer, it can act against a company if it sees a pattern of possible law violations. FTC online complaint form.

Note: The links on this page that go to web sites outside of this agency's control are provided as a convenience only. The Department takes no responsibility for their content.

Choosing a Credit Counselor Brochure.