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Credit Counseling, Debt Management, Financial Education

What is Credit Counseling and How Can it Help Me?

By Courtney Nagle | Friday December 4th, 2020

what is credit counseling

Unfortunately, the debt relief industry—made up of companies that help consumers get out of debt—is plagued with misinformation and some business models that harm or confuse consumers. You have probably seen ads for some of these services and heard the promises of various companies and debt repayment methods. It can be disorienting, and it is not always easy to know who you can trust for your debt repayment needs.

That does not mean that every type of “debt relief” is bad, but instead it means that consumers must be aware of the important differences between different types of debt relief. Many experts agree that credit counseling is a safe and effective form of debt relief. For example, here are recommendations by the Federal Trade Commission (FTC), Clark Howard, and NerdWallet. However, you may not know exactly what credit counseling is. Let’s take a closer look and clarify exactly what credit counseling is, how it works, and how it can help you.

Credit Counseling Defined

Credit counseling is a service designed to help individuals make a plan for achieving their credit and financial goals through a review of their credit report and monthly budget. This credit counseling service is typically provided by accredited nonprofit organizations and should be offered free of charge. We will discuss credit counseling in much more detail—including exactly how a session works and how it can help you. But first, it is important to understand that you may hear the term “credit counseling” used differently.

Sometimes people will refer to credit counseling in a broad sense. That may be because some credit counseling agencies sometimes use “credit counseling” in their official name (for example, an organization may use the name “Consumer Credit Counseling of,” plus a particular metropolitan area). Additionally, agencies often provide additional services, like debt management plans (DMP) or housing counseling.

A credit counseling session is sometimes the first interaction that an individual has with a counseling agency, and that counseling may lead to another type of service that helps the individual. For example, this occurs when someone enrolls in a DMP. As a result, people sometimes refer to any service they receive from an agency as “credit counseling” even though credit counseling is actually a specific single service. In this article, we will focus on the standalone service of credit counseling specifically.

What Happens in a Credit Counseling Session?

A credit counseling session provides you the opportunity to work one-on-one with a certified credit counselor. The goal of the session is to take an inventory of your current financial circumstances and to discuss your goals moving forward. This session can take place via telephone, online, or in-person, depending on the specific agency.

No matter what format you choose, you will need to provide some basic financial information to your counselor. Pay stubs, a list of monthly expenses, and your recent credit card statements are all important documents, so you will want to provide these if you can. Your counselor can put the income and expenses into a monthly budget if you do not already have one.

Of course, assessing your current debt load is also a critical piece of the puzzle. Your counselor, with your permission, can pull your credit report to review your current debts and any negative marks you may have. This step is called the credit report review. Your counselor will explain the information in your report and make suggestions about how you can use credit wisely, in a way that has positive impacts on your credit score. This step can provide significant educational value—especially if you are not familiar with credit scoring. It can help you learn ways to drastically improve your credit score, and it can even help you identify mistakes in your report that may be unfairly holding back your score.

This credit report review does not hurt your credit score, and it is not reported to any credit bureaus.

How Can Credit Counseling Help Me?

You may be wondering how credit counseling can help with your specific financial situation. There are quite a few ways that credit counseling can help you. Here are some key benefits that credit counseling provides:

  • Talk one-on-one in a confidential setting with an expert who can help and has your best interests in mind
  • Receive education both during the session and with additional resources provided for your future use
  • Get connected with other local organizations for additional help and resources, if needed
  • Walk away with an actionable plan to achieve your financial goals
  • Learn more about your credit report and score, and identify opportunities to improve
  • If credit card debt is a major concern, learn more about the debt management plan and have an opportunity to start one

Getting Started with Credit Counseling

Credit counseling is free, easy, and can make a major positive difference to your financial standing. Whether it is the first step in your journey and leads to another service, like a DMP, or it is the only help you need to make positive financial changes, consider getting started soon. Remember that you should only work with counselors from accredited, nonprofit organizations. The NFCC can connect you with counselors from our trusted member organizations. Just get started here.