What is credit counseling and how does it work?

It’s a free or low-cost service where a certified counselor helps you understand your finances, review your credit and build a plan to manage or reduce debt .

Does credit counseling hurt your credit score?

No. Many people see improvements over time. The goal is to help you manage debt, not penalize you.

Is credit counseling free?

Most nonprofit agencies offer free consultations. Some services, like debt management plans, may have small setup or monthly fees – but they’re usually affordable.

How do I know if I need credit counseling?

If you’re struggling with debt, can’t keep up with bills or want to get ahead financially but don’t know where to start, credit counseling is worth a look.

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What Is Credit Counseling and When Should You Use It?

March 25, 2025

5 min Read

Written by Stacey Bumpus

Edited by Joe Evans

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If you’re feeling stressed about debt or unsure how to get your finances under control, you’re not alone. Millions of people struggle with money management, missed payments or mounting credit card balances. You might be wondering: What is credit counseling, and can it actually help?

The answer is yes — and it’s probably more helpful (and more affordable) than you think. Credit counseling is a great way to get back on track financially without judgment, pressure or confusion. Here’s what you need to know.

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What Is Credit Counseling?

Credit counseling is a free or low-cost service that helps you better understand your finances and manage your debt.

It’s usually offered by nonprofit agencies specializing in helping people improve their financial situation. Here’s what it can do:

Help you understand your credit and debt
Create a budget that fits your income
Offer guidance to pay down debt faster

Tip: Credit counseling is about education and planning — not handing over control of your money.

How Does Credit Counseling Work?

The process is simple, confidential and designed to give you clarity:

Step 1: You meet with a certified credit counselor (this can happen in person, by phone or online).

Step 2: They review your credit report, income, monthly expenses and debt.

Step 3: Together, you create a budget and explore your options.

Step 4: If needed, they may recommend a Debt Management Plan (DMP) to help you pay off credit card debt with lower monthly payments or reduced interest rates.

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Credit counseling sessions are private. No one will know unless you choose to share it.

What Services Do Credit Counselors Offer?

Credit counseling is more than just a quick chat about budgeting. Many agencies offer a full range of services to help you take control of your money:

Budget planning: Build a realistic spending plan
Debt counseling: Review your debt and figure out solutions
Credit report reviews: Understand your credit score and how to improve it
Debt management plans (DMPs): A structured way to repay debt faster with lower interest
Financial education: Learn long-term strategies to avoid debt and grow savings

Credit Counseling vs. Debt Settlement

Feature	Credit Counseling	Debt Settlement
Goal	Teach you to manage money and debt	Settle debts for less than you owe
Cost	Free or low-cost	Often expensive (fees + a percentage of debt)
Credit Impact	Doesn’t harm your credit	Can significantly damage your score
Best For	People who want guidance and a plan	People with serious, unmanageable debt

Tip: Credit counseling is about support and strategy, not negotiating with creditors to wipe out what you owe.

Who Should Use Credit Counseling?

You don’t have to be in deep financial trouble to benefit from credit counseling. It can help if:

You’re feeling overwhelmed by bills or debt
You’re living paycheck to paycheck
You want to improve your credit but aren’t sure how
You need help setting up a realistic budget
You’re getting collection calls or late notices

Even if things aren’t “dire,” credit counseling can be a smart first step toward financial peace of mind.

How to Find a Legitimate Credit Counseling Agency

Not all credit counseling services are created equal. To find a reputable agency, look for one that is:

Nonprofit and focused on education
Accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA)
Listed on the U.S. Department of Justice’s approved list of credit counseling agencies (view the list here)

Avoid any agency that:

Charging high upfront fees
Promises to erase your debt or credit history
Pushes you into programs without explaining your options

Benefits of Credit Counseling

When done right, credit counseling can lead to real, lasting results:

Personalized advice for your financial situation
A clear plan to manage debt and avoid missed payments
Tools to help you improve your credit over time
Peace of mind in knowing you have professional support
A chance to avoid bankruptcy by making smarter choices now

Many people feel more confident and in control after just one session.

Final Take to GO & What To Do Next

So, what is credit counseling? It’s a simple, judgment-free way to get help with your money, understand your debt, and move toward a better financial future. Whether you’re buried in credit card bills or just trying to improve your budgeting skills, credit counseling could be your fresh start.

Take the next step: Look up a reputable nonprofit credit counseling agency near you, or check out our guide to free ways to boost your credit score.

You don’t have to fix everything overnight. But you can start today.

FAQs About Credit Counseling

Here are some frequently asked questions that come up while looking into credit counseling:

What is credit counseling and how does it work?
- It’s a free or low-cost service where a certified counselor helps you understand your finances, review your credit and build a plan to manage or reduce debt.
Does credit counseling hurt your credit score?
- No. Many people see improvements over time. The goal is to help you manage debt, not penalize you.
Is credit counseling free?
- Most nonprofit agencies offer free consultations. Some services, like debt management plans, may have small setup or monthly fees – but they’re usually affordable.
How do I know if I need credit counseling?
- If you’re struggling with debt, can’t keep up with bills or want to get ahead financially but don’t know where to start, credit counseling is worth a look.

The information is accurate as of March 25, 2025.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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