credit counseling (2024)

FAQs

What does credit counselling do? ›

Credit counsellors can provide services ranging from individual counselling to debt or money management plans. Counsellors will assess the current state of your finances and help find options for you, whether that's a credit card consolidation loan, a plan to manage debt, a consumer proposal or bankruptcy.

What Is Credit Counseling? Credit counseling provides consumers who may feel overburdened by debt with guidance on consumer credit, money management, debt management, and budgeting. The goal of most credit counseling is to help a debtor avoid bankruptcy if they find themselves struggling with debt repayment.

Success rates vary from 40% to 70%. Credit Counseling Payment Programs. This is a hard figure to track since the credit counseling industry does not publicly report their success rate.

Advise and educate individuals or organizations on acquiring and managing debt. May provide guidance in determining the best type of loan and explain loan requirements or restrictions. May help develop debt management plans or student financial aid packages.

You may be having trouble paying back your debt or keeping up with your payments. In this case, you may want to talk to a credit counsellor. Simply talking to them won't affect your credit score.

Look for a credit counselor who can do the most for you. You might have to pay some money for help. But a good credit counselor will not ask you to pay in advance.

Long-term commitment: Counseling services often require years to complete, during which your financial situation may change. Impact on credit: Enrollment in a debt management plan may be noted on your credit report, negatively impacting your score and borrowing ability.

It can help rebuild your credit.

The amount of debt you have as it relates to your available credit—your credit utilization—accounts for another 30% of your score. If you're struggling to find room in your budget to make your minimum payments, working with a debt counselor could help get you on the right track.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.

Credit counseling organizations are permitted to charge you fees for their services. Under debt management plans, credit counselors do not always negotiate reductions in the amounts you owe. Instead, they work to lower your overall monthly payment.

How can you tell if a credit counseling agency is trustworthy? ›

The price is clearly stated up-front and there are no hidden fees. No significant consumer complaints have been filed against the agency or its counselors. You can check this with the Better Business Bureau, your state Attorney General or local consumer protection agencies.

Beware of Hidden, Up-Front and Monthly Maintenance Fees

So, you may be sending lower monthly payments to your creditors, but you could be losing money by hidden fees your new “business partner” might not reveal to you.

Simply engaging in credit counseling itself does not directly affect your credit score. The credit counselor isn't required to report their activity to the credit bureaus in the case of offering advice and counsel.

Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make. These offers also might be for lower interest rates than what you're currently paying.

Credit providers will no longer be able to take legal action against you. In summary, your score cannot be negatively affected by going under debt counselling.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn't do that, consider it a red flag and go elsewhere for help.