What Does a Credit Counselor Do?
What does a credit counselor do? Learn about credit counselors, their services and how to find a certified credit counselor.
March 10, 2022
When you find yourself in debt — a lot of debt — it can be hard to see the light at the end of the tunnel. If you aren’t sure where to start when it comes to making a plan to pay off your debt, you may find that working with a credit counselor can help.
In this article, we’ll cover what credit counselors do, which services they offer and how to find a certified credit counselor.
What is a credit counselor?
A credit counselor provides a service designed to help their clients address their financial issues and make a plan for getting out of debt. Anyone can hire a credit counselor, but generally these services are geared toward consumers struggling with credit card debt.
What does a credit counselor do? In short, they will analyze their client’s finances and provide them with practical resolutions to any money problems they may have.
Now let’s take a more detailed look at what the process of working with a credit counselor looks like.
Find a credit counselor. The National Foundation for Credit Counseling (NFCC), Financial Counseling Association of America (FCAA) and the U.S. Department of Justice will all point you in the right direction for reputable credit counselors.
Book a complimentary consultation. Before you hire a credit counselor, you can typically book a free 60-minute consultation to go over your budget and current sources of debt. This call will give you a chance to see if you mesh well with the credit counselor. Feel free to shop around and do multiple consultations with different counselors.
Sign a counseling agreement form. After you choose a credit counselor to work with, you’ll need to sign any counseling agreement forms. At this stage, you’ll probably be asked to fill out a worksheet that lists your income, assets, liabilities and expenses.
Schedule your first appointment. In your first appointment, which will most likely occur over the phone, you’ll walk through a brief overview of your current financial situation and what you hope to achieve through counseling. The credit counselor will conduct a thorough review of your finances based on the information you provided in your worksheet. You may work together to tighten your budget, figure out what assets you can sell in order to pay for debt or discuss how you can generate more income. Your credit counselor will also walk you through what your rights and responsibilities are surrounding any debt you have. Then they will help you create a plan to meet your financial goals.
One common suggestion a credit counselor may make is a debt management plan (DMP), which will outline how you can cover your essential expenses and make your minimum debt payments. When you’re working through a DMP, you’ll send one payment each month to the credit counselor and then they’ll distribute the appropriate funds to your creditors.
In some cases, credit card companies will lower their interest rates for customers on a DMP so more of their monthly payments go toward the principal instead of interest.
Some other services credit counselors commonly offer include:
Referrals to charities, nonprofits and government organizations
Pre- and post-bankruptcy counseling
Credit report reviews
How to find a legitimate credit counselor
Now that you know what a credit counselor does, you need to know how to hire a reputable one.
Typically, you’ll come across certified credit counselors at nonprofit organizations that offer credit counseling services, such as:
Branches of the U.S. Cooperative Extension Service
Your banking institution or local consumer protection agency may also offer these services.
It’s worth noting that even if a company offering these services is a nonprofit that doesn’t mean their credit counseling services are free or even reasonably priced. Credit counseling agencies can charge high fees, so it’s important to shop around for an agency that charges fair prices.
Usually, there is a setup fee for DMPs and monthly fees. These plans typically last three to five years, so the costs can add up.
You can also request that the credit counseling agencies waive their fees. They may do this if you’re experiencing serious financial hardship, but it isn’t guaranteed.
To find a reputable credit counseling agency, do some research on any agencies you’re considering by consulting your state attorney general or local consumer protection agency. You should be able to see if any consumers have filed complaints about them. A lack of complaints isn’t a guarantee of competent service, but it’s a good place to start.
You can also interview any agencies you’re considering. The Federal Trade Commission (FTC) recommends asking the following questions:
What services do you offer? Ideally, you’ll work with a credit counselor that has multiple services available such as budget counseling as well as savings and debt management classes.
Do you offer complimentary education information? It’s best to avoid organizations that charge for information.
Will you help me develop a plan to resolve my issues and avoid repeating past mistakes?
What are your fees? Ask for a price quote in writing.
What if I can’t afford to pay your fees or make contributions? If you can’t afford their services and they aren’t willing to lower their prices, find an agency that better meets your budget.
Will I have a formal written agreement or contract? Make sure you get any verbal promises they made in writing.
Are you licensed to offer your services in my state?
What are the qualifications of your counselors? Find out who accredited their counselors and how the counselors are trained. It’s a good idea to use an organization whose counselors are trained by a nonaffiliated party.
Will my information be kept confidential and secure?
How are your employees paid? You’ll want to know if their employees get paid more if you sign up for additional services, which is a major red flag.
Is credit counseling a good fit for me?
Like anything in life, credit counseling has advantages and disadvantages. It will be up to you to decide if it’s the right path forward for you.
While credit counseling can help you make a plan for paying off your debt and getting your financial ducks in a row, it’s a much better fit for consumers with credit card or personal loan debt.
If you’re struggling to pay off a mortgage, auto loan or any kind of secured loan debt, you can’t make it part of a DMP. In that case, you may find that applying for a balance transfer credit card or consolidation loan with a low interest rate is a better way to make paying off your debt easier. Again, it’s up to you to weigh the pros and cons.
Do you need help paying down your credit card debt? Tally† is a credit card debt repayment tool offering a lower-interest line of credit that can help streamline your repayment process. Learn more about how Tally works.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.