How credit counseling works
The goal of credit counseling is to help you create a sustainable budget and plan so you can make better money choices in the future, explained Shanté Nicole, a certified credit consultant and founder of the website Financial Common Cents.
A counselor can help you with:
- Budgeting
- Managing debt
- Negotiating more favorable terms with creditors
If you have a lot of high-interest debt, your counselor might suggest a debt management plan (DMP) to pay down your debts.
With a DMP, the counselor negotiates with creditors on your behalf to reduce your interest rates or extend the amount of time you have to repay your debts. A DMP allows you to combine several different debts into a single monthly payment, and you can typically pay off your debt within three to five years if you stick to the DMP.
Credit counseling costs
“The cost of credit counseling can vary depending on the organization providing the service and the complexity of an individual’s financial situation,” said Nicole.
Most credit counseling agencies are nonprofit, which enables them to provide services for free or for a nominal fee. They may even offer reduced or waived fees for clients who can’t afford to pay.
Nicole noted that for-profit agencies “may charge higher fees, which can be based on a percentage of the debt being managed or a flat monthly fee.”
Costs can also vary by state. For instance, in California, monthly fees charged for a DMP are capped at either $35 or 8% of the monthly amount paid to creditors, whichever is less. An education and counseling fee of $50 can also be charged.
Pros and cons of credit counseling
Credit counseling can be a great way to tackle debt and take control of your finances, but there are some considerations you should keep in mind.
Pros
- Credit counselors can help you make long-term changes to your financial habits
- Working with nonprofit credit counselors may allow you to access free or affordable counseling
- A DMP consolidates your debts into one monthly payment and may reduce interest
Cons
- A credit counselor can show you how to manage your debt, but you need to do the work
- DMPs usually have setup and monthly fees
- Creditors might not agree to negotiate with your credit counselor
How credit repair works
Credit repair is the process of trying to get negative information removed from your credit reports. While it is possible to repair your credit on your own, credit repair companies will do it for you for a fee. A credit repair company will look for any errors in your reports and then contact the credit bureaus to request that the errors be removed.
Some credit repair companies have historically exaggerated their abilities to improve clients’ credit, which is why the Credit Repair Organizations Act (CROA) came into effect. Among other things, the CROA prohibits credit repair companies from misrepresenting their services and demanding advance payments from customers.
If you’re trying to improve your credit score, a credit repair company might sound like an easy fix. But unless there is information in your credit report that you believe is incorrect, it’s unlikely that a credit repair company’s services can help improve your credit score. A credit bureau isn’t obligated to remove negative but accurate information from your credit report, no matter how much pressure a credit repair company might apply.
» MORE: 9 ways to improve your credit score
Credit repair costs
Credit repair companies often charge a one-time setup fee of around $50 to $200, as well as a monthly fee that typically ranges from about $50 to $150 or so. It can take anywhere from three to six months to resolve multiple credit report issues, so a completed credit repair service could potentially cost more than $1,000.
Pros and cons of credit repair companies
Hiring a credit repair company may seem like an easy way to potentially raise your credit score or help you prepare to take out new credit in the future, but there are some pros and cons to consider.
Pros
- Having someone else review your credit reports saves you time and stress
- If the credit repair company identifies legitimate errors, you’ll have help removing that negative information from your report(s)
- It might make financial sense to outsource a credit report dispute to a third party, depending on the dispute’s complexity
Cons
- The Federal Trade Commission warns of numerous credit repair scams
- You’re paying for a service you can technically do yourself
- There is no guarantee that your credit will be repaired. If there are no errors in your report, there’s nothing to fix
The difference between credit counseling and credit repair
An important difference between credit counseling and credit repair is that credit counselors typically hold specialized certifications and have undergone specialized personal finance training. This allows credit counselors to assist clients with debt management and budgeting.
“Counselors discuss your financial situation with you and help develop a personalized plan,” explained financial educator Matt Paradise.
On the other hand, the goal of credit repair companies is to “get negative credit information deleted from credit reports or change it to be more favorable to the consumer,” said Paradise. He warned that consumers who are considering paying for credit repair services should “be careful, as the credit repair industry is full of fraud.”
Ultimately, the task of disputing errors on your credit report doesn’t require any specialized skills or training; it just takes time and effort and is something you can do on your own.
Credit counseling/repair vs. debt settlement/consolidation
If the terms “credit counseling” and “credit repair” sound similar, what about “debt consolidation” and “debt settlement?” Are they the same thing? And how do they differ from credit repair and credit counseling?
- Debt settlement companies are typically for-profit organizations that charge a fee for their services. They offer to remove your debts by paying them off with lump sum payments that you save up for, and they may not be able to snag better terms than you could get by negotiating with debt collectors and lenders yourself. You should note that many lenders don’t negotiate with debt settlement companies.
- You can apply for a debt consolidation loan through a bank, credit union or online lender. When you take out a debt consolidation loan, you’re borrowing money to pay off all your other lenders, leaving you with the singular loan to pay back over time. A debt consolidation loan might be a good option if you’d pay less interest on it than you would on your other debts.
Both debt settlement and debt consolidation are approaches to paying off your debts, while credit repair focuses on trying to remove any errors from your credit report, and credit counseling aims to help you pay off your debts in the short term and set yourself up for future financial success in the long term.
When to choose credit repair vs. credit counseling
Whether you choose to work with a credit counselor or a credit repair company should be informed by your goals and what you hope to achieve.
- A credit counselor provides a holistic approach to helping you improve your personal finances. If you are struggling to manage your money and pay off debt, a credit counselor can provide tools and knowledge to help you get back on track.
- A credit repair agent will assist you in trying to dispute errors on your credit report. If your primary goal is to improve your credit score and you want someone else to take the lead on reviewing your reports for errors, working with a credit repair company might make sense.
FAQ
Is credit repair legal?
Yes, the process of credit repair is legal. The CROA is a federal law that regulates credit repair agencies and outlines what they can and cannot do.
What can credit repair remove?
A credit repair company can dispute errors or fraudulent information in your credit reports.
How fast does credit repair work?
The amount of time that credit repair takes depends on several factors, including the type and amount of negative information in your credit reports. Negative information can stay in your report for up to 10 years, depending on its severity. If you’re disputing false information, it can take around a month to six months to resolve, depending on the number and complexity of the errors.
Does credit counseling affect your credit score?
Simply meeting with a credit counselor will not affect your credit score. But depending on the actions you and your credit counselor decide to take (such as implementing a DMP and/or closing accounts), it’s possible your credit score might be affected.
What hurts your credit score the most?
Payment history accounts for the largest portion of your credit score, which means late or missed payments can cause considerable damage. But filing for bankruptcy might be the single most catastrophic action for your credit score; a bankruptcy can cause a very high score to drop up to an estimated 240 points.
Bottom line
While credit counseling and credit repair are both designed to help you improve your financial situation, they don’t have much in common. A credit counselor is trained to help you better manage your personal finances and debt. If you apply the tips and tools you acquire from a credit counselor, it’s possible to significantly improve your financial situation in the long term. But it takes work.
A credit repair company won’t help you create a budget or figure out how to save for your first home. Credit repair is focused solely on trying to rid your credit reports of errors. Disputing a credit report is something you can do independently, but some people choose to hire a credit repair company because they want assistance or don’t have the time to do it themselves.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- California Department of Financial Protection & Innovation, "Check Out Your Credit Counseling Agency." Accessed Jan. 26, 2026.
- Federal Trade Commission, "Credit Repair Organizations Act." Accessed Jan. 26, 2026.
- Federal Trade Commission, "Fixing Your Credit FAQs." Accessed Jan. 26, 2026.
- Debt.org, "How Does Bankruptcy Affect Your Credit?" Accessed Jan. 26, 2026.
- Consumer Financial Protection Bureau, "What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?" Accessed Jan. 26, 2026.
