How to Find a Good Credit Counseling Service

A credit counseling service provides help to consumers who find themselves unable to manage their debt, and offers financial counseling services to help them find and implement strategies to reduce or pay off their debt and to manage their money more effectively. Services may include education, assistance with budgeting, and help forming a strategy tor reduce or eliminate debt.


If you are seeking credit counseling services, the odds are that you are already in a financially precarious position - few people seek credit counseling before they are over their heads in debt, perhaps also being hounded by creditors.

When a credit counseling service promises an easy resolution to your credit woes, it can be tempting to believe everything they say - and a good credit counselor can provide a great deal of assistance. But you have to exercise care, or you can end up with a credit counseling service that will take advantage of you.

Who Benefits From Credit Counseling

People who will most benefit from the services of a credit counseling firm are typically unable to make minimum payments on their debts and are not able to pay all of their bills in a timely manner. Many are already being sent threatening letters from their creditors, or are being targeted by collection agencies.

Credit counselors assist with unsecured debts, such as personal loans and credit card debts, or bills for medical care. They typically do not work with secured loans, such as home mortgages or car loans, or with payments due for utility services or insurance bills. However they will consider your entire debt load when creating a budget and repayment plan. A

If you are at risk of foreclosure or repossession, a credit counselor may be able to assist you or advise you as to how to contact your lenders and obtain additional time for you to catch up on your late payments.

If a credit counseling service can negotiate your debts, create a budget to help you keep on top of your obligations, and provide any appropriate debt management services, you will probably benefit from working with an ethical service. But if your financial situation is beyond that type of management, you may need to consider bankruptcy.

What Services Are Provided?

A typical credit counseling service focuses first on assessing your financial situation, and next on negotiating better interest rates with your creditors and helping you establish a budget and payment plan. It then provides debt management services, with the client paying a monthly fee that will is used to pay the client's debts and, assuming the counseling service's fees are not being paid by the client's creditors, the counseling service's fee for managing the debts.

Credit counseling services will typically attempt to renegotiate your debts to try to obtain lower interest rates or even voluntary reductions in the principal owed. If the credit counseling service offers a debt management program, as most do, clients who use those services will pay the counseling service a monthly fee that will be used to pay the client's debts, and the counseling service's fee for managing the debts.

Note that if a creditor is not included in a debt management plan, you will be responsible to continue to make payments to that creditor on your own. You should clarify with your credit counseling service that, if any, of your debts you must continue to pay yourself.

Credit Counseling vs. Debt Consolidation

There is a significant difference between a credit counseling service and a lender providing debt consolidation loans, or a service that promises to "repair" or renegotiate your credit without providing any counseling or support.

A company that promises to resolve your debts "for pennies on the dollar" is not a credit counseling service as that term is generally understood - and no respectable credit counseling service would make such a claim. Many such debt settlement services are fly-by-night operations that charge significant fees, and that may disappear with your money without having actually performed any services on your behalf.

Fees and Commissions

Credit counseling services obtain fees in two manners. First, they may charge the consumer a fee for the counseling service. Second, as they negotiate a payment structure with your creditors, they may receive a fee or rebate from the creditors.

Pursuant to regulations imposed by the Federal Trade Commission (FTC),

  • A credit counseling service that promises debt reduction and solicits business by telephone may not charge a fee before the service actually settles or reduces a consumer's debt.
  • Debt relief providers are prohibited from making false statements and misrepresentations to consumers, and must disclose key information to consumers so that the consumer may properly evaluate the provider's services and fees.

Warning Signs of a Questionable Service

The following signs suggest that you may have contacted a credit counseling service that is more interested in profiting from your situation than in helping you resolve your credit problems:

Excessive Fees: Services that charge large up-front fees or high monthly commissions may be more interested in turning a quick profit than in actually helping you with your debt situation.

Extraordinary Promises: Services that promise to settle your debt for pennies on the dollar are unlikely to be ethical or responsible. Similarly, services that promise that negotiations with your creditors will have no effect on your credit rating should be viewed with skepticism.

Missed or Late Payments: If the credit counseling service is providing you with debt management services, it should make all payments to your creditors in a timely manner.

Although consumers should seek out non-profit credit counseling services, not all non-profit services are trustworthy. Some nonprofit services charge excessive fees as compared to other services, or give poor advice to their clients.

Play it safe by seeking credit counseling and debt management services accredited through the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. It is far less likely that an accredited organization will charge excessive fees or try to take advantage of you, than it is for an organization that is not accredited.

Copyright © 2004 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 8, 2018.