What is credit counseling?

It’s easy to let debt from credit cards, auto loans, or personal loans spiral out of control - and it’s ok to seek help in getting your financial health back on track. If you’re having trouble managing your debt - then know that you are not alone.

Before we get started, it's important that you know to avoid credit counseling and debt settlement scams on the internet. It’s extremely important to thoroughly research any person or company claiming to be able to help you with debt or credit. If you look hard enough, you can find legitimate credit counseling agencies who can help you pay down your debt and teach you about healthy financial management.

A credit counseling agency is a great option for anyone who feels like they need some extra help managing debt, keeping track of finances, or creating a budget. Credit counselors can also help you with things like reading your credit report, coming up with strategies to pay off old debt, and learning how to be responsible with credit cards and loans.

There are also credit counselors who specialize in more specific financial situations, such as credit card and loan debt counseling (which also includes student loans), home loan and mortgage counseling, payday loan payoff strategies, personal financial planning, married couple financial counseling, and more.

The first thing you'll do after you’ve chosen a credit counseling company that you trust, is have an initial session with your new credit counselor. This will likely involve a phone call or in-person meeting with the counselor, and could last anywhere from fifteen minutes up to an hour.

During your initial counseling session, the counselor will provide you with a variety of feedback on topics such as:

The credit counselor may work with you and your creditors to put together a financial debt management plan. You would consult with the credit counselor and come up with an affordable monthly payment, and you would pay that directly to the credit counseling organization. They would then pay the creditors on your behalf.

These types of plans aren’t necessary in everyone’s situation. It may not be a fit for you, and there may be some fees involved. The benefit would be that the credit counseling organization may be able to cover your payment to your creditor if your payment is late - but then you would end up paying fees to the credit counselor (while avoiding negative marks on your credit report). If you are able to start making regular, on time payments directly to your creditors, that would be your best option.

Preparation is key if you decide to seek out the services of a credit counseling organization. Ahead of your first appointment, you should prepare and organize as much information as you can such as your gross monthly income, your assets such as your house and car, any debt you owe, and all of your monthly living expenses. This will give the credit counselor the information they need to provide you with highly customized advice for your specific situation.

Expect your first meeting with a credit counselor to take anywhere from 45 minutes up to an hour and a half. Make sure to set aside enough time so that you don’t have to rush things.

Just about anyone can consider credit counseling! A common misconception is that credit counseling is only for people who are seriously in debt or in dire financial trouble. In reality, credit counseling can be a great service for any individual who would like a little help with financial planning, credit repair, debt payment strategies, or general financial advice.

An example of a great candidate might be someone who just received their first credit card. The counselor will be able to help you set up a budget so that you don’t accidentally start to overspend with your new line of credit. They will take a look at your monthly income as well as your monthly expenses, and create a budget for you to adhere to. They will talk about the importance of making on time payments, not spending more than you can afford, and explain how interest works.

Another example of a great candidate for credit counseling is someone who has had past trouble with paying their monthly obligations on time. They would explain that instead of waiting for delinquent accounts to go into collections, you can take a proactive approach by asking a creditor about payment plans or looking into debt consolidation. They can give you the advice you need to turn things around before your credit score drops and your debt starts to pile up.

It’s important to avoid credit counseling scams, especially on the internet. People looking for financial advice and help with debt are sometimes in a desperate situation, and willing to pay anyone who claims they can provide help. This has led to a widespread problem with predatory credit counseling and credit repair companies. You should perform thorough research on any credit counselor you are considering doing business with, and specifically look for:

Your initial session should be free, but depending on which services you opt for, there may be fees involved. Shop around to check what other credit counseling organizations would charge for the same services.

If anything seems suspicious, or if the credit counselor is being overly aggressive in trying to get you to enroll in their program with fees attached, then be careful. There are many debt settlement agencies who are looking to make money from pretending to be credit counselors.

No matter what type of situation you are in, it can never hurt to sign up for a free consultation with a credit counseling company. Whether you just need a little budgeting advice, or you need a full blown debt consolidation and management plan - credit counselors are there to help individuals like yourself. Do your research to find a reputable credit counselor, and be up front and honest about your expectations and your financial situation.