If you’re struggling to get out of debt and need a plan to reach your goals, credit counseling can provide you with services and guidance to help you get back on track.

Credit counseling is designed to help those who need help to manage their debt, budget, and finances. From budgeting and debt counseling to getting interest rates revised, a good credit counselor can assist you in restructuring what is paid to each creditor monthly, so you can pay off your debt sooner. 

By doing so, you can maintain a solid credit score and avoid any serious financial challenges.  A recent survey indicated that as much as 73% of young adults had to change their spending habits due to record-high inflation in 2023. It’s more important than ever to avoid debt and set aside emergency savings. 

Nonprofit and for-profit credit counseling companies can help you find a way to deal with mounting debt so you can start contributing to your emergency funds. Understanding more about how it works will help you determine if it’s the right solution for you.

What Is Credit Counseling?

Credit counseling is a term that describes services that help people with money management. A large part of the work in credit counseling involves creating debt management plans and individual counseling to help implement those plans and prevent the debtor from once again falling back into debt. 

Nonprofit credit counseling companies are affiliated with organizations like the NFCC and typically offer a free initial session. Fees may apply for services such as debt management plans. Credit counselors can analyze your financial situation and create a personalized plan to help solve your debt problems.

Benefits of Credit Counseling

A good credit counselor can help you pay off your debt in about 5-7 years as they work with you to analyze your budget and help you commit to a plan. Ultimately, their goal is to help you gain peace of mind knowing that you have a plan to pay off your debts. 

Here are a few additional benefits you can expect:

  • Credit Counselors offer financial education so you can gain knowledge that will help you improve your financial well-being. This financial literacy will help you in the future in a number of ways.
  • Credit counseling can help you optimize your budget. Counselors can provide you with the tools you need to make informed decisions about your finances. Ultimately, if you stick to on-time monthly payments and commit to paying down your debt, you will likely be able to improve your credit score over time. 
  • Your counselor can help you strategize how to pay off credit card debt and other high-interest debt that may otherwise keep you trapped for years.
  • Enrolling in a debt management plan can help stop aggressive debt collector calls so you can focus on paying off debt.
  • Credit counseling can also help you reach your financial goals, such as finding a mortgage and preventing short sale or foreclosure. 

6 Ways Credit Counseling Services Can Help You

A credit counseling agency can recommend many solutions to help you resolve your financial issues. Here are six ways credit counseling can help.

1. Debt Counseling

During the initial debt counseling session, your credit counselor will collect information about your expenses, income, assets, and debts. They may also pull your credit report to review your credit score and overall credit situation. 

Your counselor will then recommend solutions to help pay off your debt. Based on your debts and income, they may recommend debt management or another solution.

2. Debt Management Plan

If you have sufficient income, your credit counselor may recommend enrolling in a debt management plan. A debt management plan does not reduce the amount of debt you owe to your lenders.  

Instead, it helps you manage payments made to your creditors so you make the right payments to the right lenders, in the right amounts, at the right time each month.  This way, you are much less likely to miss a payment because an envelope wasn’t mailed on time or you made a payment out for more/less than you should have that month.

If you have unsecured debts such as credit card debt and loans, a debt management plan may help. It makes it more affordable and easier to pay off your debt over 3 to 5 years without having to take out another loan or implement more enhanced assistance with managing your debt.

Your counselor may negotiate with your lenders to reduce interest rates and waive certain penalties or late fees. In exchange, you may be required to close a few credit cards. If you are consistent with making monthly payments, it is an effective way to pay off your debts.

Credit counseling organizations usually charge a setup fee of around $50 to enroll you in a debt management plan. You’ll then be required to pay a monthly fee, which is approximately $30, depending on your debt amount and your state.

3. Credit Report Reviews

Your credit counselors can pull your free credit reports and review them with you. They can help you identify items or errors that may be lowering your score.

They can also give you a better understanding of what is hurting your score so you can take the recommended steps to start building a positive credit history

4. Bankruptcy Counseling

Credit counseling agencies can help you determine if filing for bankruptcy is the right solution for you. They can educate you about the pros and cons of bankruptcy and how it may affect your finances and credit score, both now and in the future.

Your counselor can also provide you with pre-discharge education so you can receive a completion certificate before your debts can be discharged by the court.

5. Mortgage Counseling

Many certified credit counselors specialize in providing mortgage loan counseling services. If you’re planning to purchase a home, counseling agencies can help ensure that you are financially prepared. 

If you own a home and are struggling to keep up with mortgage payments, your counselor can help you with loan modification programs. Additionally, counselors can teach you how to budget, pay taxes, find a mortgage, deal with home inspections, and other areas that are necessary for homebuyers. These classes are offered by HUD-approved housing counseling agencies.

6. Student Loan Counseling

Student loan counseling services can help you determine the right plan for managing and repaying student loans. A professional credit counselor can discuss different repayment options that may work for you, such as refinancing and loan consolidation.

The federal government currently offers several repayment plans with different eligibility requirements and benefits. Your credit counselor can help you identify which repayment option will be the most suitable for you.

What To Look for in a Credit Counseling Company

Before you decide to work with a credit counseling company, it’s important to vet them thoroughly. Here are a few things to consider.

Certification and Accreditation 

Ensure that the agency you work with is certified and accredited by the National Foundation for Credit Counseling. This is a good way to ensure that it is a reputable company that maintains a high standard of practice.

Compare Prices

The prices of the services offered by credit counseling agencies vary by state, agency, and the nature of the service. Make sure you understand how much you’ll be paying for the services. Avoid working with any company that asks for upfront payment before delivering any services.

Accessibility

Many agencies offer in-person counseling for select locations. Check to make sure you have easy access to counseling services in your location. Ensure that the agency is properly licensed in your state before you commit to a program.

Consider Alternatives if Credit Counseling Isn’t Right for You

There are more ways than one to deal with overwhelming debt. Credit counseling is one debt solution, but you may also be eligible for other programs such as debt consolidation or debt settlement.

TurboDebt can help you find the right debt relief program for your needs. We offer one-on-one advising, consultation, and planning services to help ease the burden of debt. Our debt relief services can put you on the path to a debt-free life. Contact us today for a free consultation. 

Read our TurboDebt reviews from satisfied clients that recommend our debt relief services.