How does credit counseling work?
Credit counselors educate consumers on how to negotiate debts and create payment plans. In some cases, they'll reach agreements with your creditors to repay your debts without late fees or going into collections.
When you attend a private session with a credit counselor, you’ll discuss your financial situation and goals. During this session:
- You'll review your income, expenses, debt, credit report and other topics.
- The counselor will advise you on how to manage your money and help you create a plan to tackle your debt.
- They'll also offer free educational materials so you can learn more about money topics.
"Credit counseling involves working with a counselor to create a budget and develop a plan to pay off your debts,” explained Levon Galstyan, a certified public accountant at Oak View Law Group. “Counselors can teach you better money management skills and may help negotiate with your creditors."
According to a study conducted by the National Foundation for Credit Counseling (NFCC), a nonprofit with over 1,000 certified credit counselors, 73% of consumers it works with can pay back debt more consistently.
Credit counseling vs. debt settlement
While they may offer services to help you overcome your debt, credit counseling agencies are not debt settlement companies. Debt settlement companies are usually for-profit businesses that charge a fee to negotiate your debts.
Some debt settlement companies advise consumers to stop making payments to pressure creditors into more favorable negotiations. However, this can result in late fees, penalty interest rates and negative marks on your credit report.
What services do credit counselors offer?
Credit counseling agencies offer a variety of services designed to help people build better money habits. Here are the primary services you can benefit from when working with a credit counselor.
General credit counseling
General credit counseling focuses on education, budgeting and understanding how your financial choices affect your credit. A credit counselor will review your finances and suggest practical strategies to regain control before debt becomes unmanageable.
With this type of credit counseling, counselors will help you:
- Learn what each item means on your credit report and how it affects your credit score
- Get guidance on what steps you can take to improve your score in the short and long term
- Identify debts that are impacting your credit score and which debts have the highest interest rates
Debt management counseling
Debt management counseling takes a deeper look at your income, expenses and existing balances to create a structured payoff strategy. Your counselor will:
- Review your current income and expenses to determine how much money you have to pay down debt
- Highlight areas where you can free up additional cash to build savings and reduce monthly obligations
With a debt management plan (DMP), you pay a lump sum to the agency, which then sends the money to your creditors. The credit counseling agency does not charge any fees, and 100% of the amount you pay goes to your creditors. Credit counselors may be able to stop collection calls and reduce or waive finance charges on your account.
Pre-bankruptcy counseling
Pre-bankruptcy counseling helps you understand whether filing for bankruptcy makes sense based on your financial situation. In many cases, completing a counseling session with an approved agency is required before filing.
During the session, you will:
- Review your debts, income and alternatives to bankruptcy
- Discuss whether you're a good candidate for filing for bankruptcy
- Learn what each type of bankruptcy is and how it affects your credit and future borrowing ability
Housing counseling
Housing-focused credit counseling supports people dealing with mortgage stress, foreclosure risk or rental affordability challenges. Your counselor will:
- Review loan terms and explain modification options
- Help you communicate with lenders and create a plan to catch up on missed payments
Some agencies also provide guidance for first-time homebuyers or renters who want to strengthen their finances before signing a lease or mortgage.
Student loan counseling
Student loan counseling is designed for borrowers who need help understanding a repayment plan or getting caught up on delinquent loans. Counselors can:
- Explain federal repayment options, consolidation and income-driven plans
- Advise you on how to avoid scams or costly mistakes
- Help you explore rehabilitation or restructuring strategies to get back on track while protecting your credit
How much does credit counseling cost?
The costs for credit counseling vary depending on which agency you work with and which services you need. Nonprofit credit counseling agencies do not make a profit, so they can offer many services for free or at a low cost. They often get funding from other sources, like donations and government grants, which also helps to reduce their costs.
Whether your credit counseling agency is nonprofit or for-profit, they generally offer an initial counseling session for free. All agencies certified by the NFCC offer free credit counseling sessions.
Debt management plan costs
If you need a DMP, you may be asked to pay an initial fee plus a monthly fee for as long as you're in your plan. The Uniform Debt Management Services Act caps debt management fees at $79 per month, but state laws may have lower limits. For example, Consolidated Credit clients pay an average of $40 per month.
For-profit companies are bound by the same $79-per-month limit for debt management plans. However, they may try to hit you with other fees and services to get around those rules.
How do you find a credit counselor?
Many qualified credit counselors are available through the NFCC. Or, if you know someone who has had financial difficulties, ask them who they worked with. Community and religious organizations may also have local recommendations for legitimate credit counseling agencies.
Note that scams are prevalent in the credit counseling industry. Be wary of organizations that charge hundreds or thousands of dollars for services that many nonprofits or legitimate for-profit agencies offer.
If a counselor asks for a big payment upfront, seek a different counselor immediately.
When comparing credit counselors, consider these factors before signing up:
- Accreditation. Being accredited means the agency has been reviewed by an industry organization that holds it to high standards. You are less likely to be scammed if the company is accredited.
- Specialties. Does the credit counselor have experience or certifications in the areas where you need the most help? While a general credit counselor can be good, having someone who specializes in situations like yours can accelerate your progress.
- Fees. How much does the agency charge? What happens if you can't afford to pay or if your job situation changes?
- Other services provided. Does the counseling agency offer other services that can help you reach your goals faster? Many consumers need additional education to learn how to manage their money and save for their future.
- In-person vs. online. Will you meet with the agency online or in person? Online services make it easier to fit credit counseling in your schedule, but many consumers prefer meeting in person with their counselor.
- Hours available. Do their operating hours coincide with your schedule? Are they available in the evening or on weekends to avoid missing work or in case you have questions?
How do you prepare for a credit counseling session?
After your credit counseling session is booked, you need to prepare for your meeting to get the most out of it. You'll need to bring certain documents, and it helps to have written goals or a purpose for the meeting.
Here’s what you’ll want to have ready:
- Recent paycheck stubs: Gathering your paycheck stubs from the last two months helps counselors understand your income.
- Household budget: If you don't already have a budget, make a list of your expenses (utilities, insurance, food, etc.) so it is easier to estimate your monthly obligations.
- List of current debt: Bring copies of recent statements for all bills, including credit cards, auto loans, mortgages, personal loans and others.
- Credit report: Obtain your credit report for free from AnnualCreditReport.com. This ensures that no debts are missed and your counselor gets a complete picture of your debt situation.
- Bank account and investment statements: These accounts highlight how your money is being used and may provide resources to eliminate debt.
- Financial goals: Think about what your financial goals are in the short term and long term. Once your debt is paid off, what else do you want your money to do for you?
- Questions: What questions do you have for the counselor? Ask them about the fees, how long it will take, what other services they provide and other concerns you may have.
FAQ
Will going to a credit counselor affect your credit score?
Your credit score will not suffer just from speaking to or working with a credit counselor. However, a debt management plan may affect your credit score, depending on payment arrangements. Even so, the purpose of credit counseling is to improve your financial situation, so while a payment plan may cause an initial dip in your score, improved habits will bring it back up in the long run.
Is credit counseling the same as credit repair?
No, these are two different services. Credit counselors may discuss your credit report and provide tips for improving your score, but their primary focus is to help you manage your budget and get on track to pay off your debt. Credit repair companies solely focus on your credit and attempt to remove negative items from your credit report.
Can credit counselors reduce your debt?
Credit counselors negotiate agreements between consumers and creditors to create a debt payoff plan. This may involve lowering interest rates, waiving fees and adjusting your monthly payment amount. Through a debt management plan, you pay the credit counseling agency, which distributes the money to creditors according to an agreed-upon plan.
What’s the difference between a debt management plan and debt settlement?
A debt management plan is a repayment plan that is agreed to by creditors and consumers ahead of time. You make one payment to the credit counselor, who then pays your creditors according to the plan.
Debt settlement is the act of negotiating your debts to repay less than you owe. In some cases, a debt settlement company may advise you to stop making payments and avoid talking to creditors to force them to negotiate.
What are red flags to watch out for when choosing a credit counselor?
When choosing a credit counselor, red flags include guaranteeing to erase debt, asking for large upfront fees or pressuring you to sign up quickly. Legitimate nonprofit credit counseling agencies are transparent about costs and explain all your options. You should also avoid counselors who tell you to stop communicating with creditors or who refuse to give you written information about services.
What credit counseling alternatives are there?
Common alternatives to credit counseling include:
- Debt consolidation: Consolidating debt entails combining multiple debts into one new loan or balance transfer, ideally with a lower interest rate.
- Debt settlement: Debt settlement companies try to negotiate with creditors so you pay less than the full balance owed.
- Bankruptcy: This legal process may eliminate or restructure certain debts when repayment is no longer realistic. It can provide a fresh financial start but has serious long-term credit consequences.
- Credit repair: This service focuses on disputing inaccurate information on your credit report and improving how your credit profile looks to lenders.
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:
- Consumer Financial Protection Bureau, "What Is Credit Counseling?" Accessed Feb. 9, 2026.
- Board of Governors of the Federal Reserve System, “Survey of Household Economics and Decisionmaking.” Accessed Feb. 9, 2026.
- Board of Governors of the Federal Reserve System, “Economic Well-Being of U.S. Households in 2024.” Accessed Feb. 9, 2026.
- National Foundation for Credit Counseling, "Evaluation of Outcomes: The NFCC’s Sharpen Your Financial Focus Program." Accessed Feb. 9, 2026.
- Consumer Financial Protection Bureau, "What Is the Difference Between Credit Counseling and Debt Settlement, Debt Consolidation, or Credit Repair?" Accessed Feb. 9, 2026.
- National Foundation for Credit Counseling, "How We Help." Accessed Feb. 9, 2026.
- National Foundation for Credit Counseling, "What Is a Debt Management Plan?" Accessed Feb. 9, 2026.
- Clearpoint, "How Does Consumer Credit Counseling Work?" Accessed Feb. 9, 2026.
- Consolidated Credit, "What Is a Debt Management Program?" Accessed Feb. 9, 2026.
- GreenPath, "Debt Management Program." Accessed Feb. 9, 2026.
