Can I Trust a Credit Counseling Agency? Here’s What You Need to Know.

Editor’s Note: This post was originally published in April 2019. 

The NFCC often receives questions from readers about their money challenges. We answer common questions in our Ask an Expert series to help readers find the information they need.

Question: I need to get out of debt, but I don’t know if I can trust the credit counseling agencies. Who can help me?

I remember hearing that most of the credit counseling agencies are in cahoots with the credit card companies, and that they do not have the consumer’s best interest at heart. Is this true? 

Due to health problems, I haven’t worked for way too long and am in a huge amount of debt. I’m at the point where I need to possibly file for bankruptcy, or see if the credit card companies can charge me less. I haven’t missed any payments and I want to pay all of this back, but at this point I’m just treading water. How do I figure out what to do? Is there some sort of free (and reputable) agency I can contact?

Answer: Dear Reader,

“Cahoots” is such a great word, but it’s not necessarily correct. Saying that credit counseling agencies sometimes partner with creditors would be more accurate.

Nonprofit credit counseling organizations exist for one basic purpose: to help financially distressed individuals deal with debt and manage their money more effectively. That may sound like a public relations statement, but it’s the truth! 

Here’s more information about how these agencies work with creditors.

Why do credit counseling agencies work with creditors?

Credit counseling organizations and creditors sometimes work together to help consumers overcome their financial challenges. Here are a couple of ways they do that:

• Avoiding missed payments: Creditors tend to like credit counseling agencies because they help cardholders pay back their debt. If you go through credit counseling, you can get help building a budget, get support for managing debt, and find ways to stay current on your debt payments. Because of this, some creditors contribute funds to credit counseling agencies so they can continue to do their work. Credit counseling agencies also get funding from grants and fundraising.
• Debt management plans: Some creditors will offer you special terms if you enroll in a debt management plan (DMP). For example, your creditor may lower your interest rates  or reduce your monthly payment if you include your account in a DMP.

How do you find a reputable credit counseling agency?

If you want to find the best help, reach out to one of the National Foundation for Credit Counseling‘s (NFCC’s) member agencies. The NFCC has been around since 1951, and its member agencies provide free and low-cost advice to their clients. 

As a client, you can simply talk to a counselor without having to sign up for any services. There’s no obligation to take their advice.

You can schedule an appointment with an NFCC-member agency online, or by calling 800-388-2227. Most sessions are done over the phone, but face-to-face sessions are available too.

What happens in a credit counseling session?

During a one-hour session with an NFCC-certified credit counselor, you’ll tell your counselor what your goals are and share details about your situation. That includes reviewing your income and monthly expenses. 

Then, the counselor will offer you personalized advice. For example, they may suggest enrolling in a DMP to pay off your debt, or they can walk you through other options, like debt consolidation or bankruptcy.

How can credit counseling help you? 

Your credit counselor is a financial professional who will work to fully understand your finances. Their job isn’t to push a specific solution; it’s to help you find one that fits your financial goals and needs. 

For example, given what you shared, the counselor may want to talk to you about your income situation. They can help you brainstorm ways to earn money and/or connect you with other agencies that might help you cover your necessities. Additionally, the counselor will review your debt and recommend specific ways to manage each account.

Based on what you shared, it sounds like you could benefit from talking to one of these professionals ASAP. 

Sincerely,
Erica Sandberg

Erica Sandberg is a consumer finance expert and journalist. She’s a former NFCC-certified credit counselor who has written for U.S. News & World Report, TIME, Newsweek and more. Sandberg is also the author of “Expecting Money: The Essential Financial Plan for New and Growing Families.”