What is credit counseling?
Credit counseling organizations can advise you on your money and debts, help you with a budget, and offer money management workshops.
Credit counseling organizations are usually non-profit organizations. Typically, their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your financial situation with you and help you develop a personalized plan to solve your money problems. Here are some examples of what credit counselors might do:
- Advise you on managing your money and debts
- Help you develop a budget
- Help you get a copy of your credit report and scores
- May offer free educational materials and workshops
- Organize a “debt management plan” to pay down your debts
What should you expect from a credit counseling session?After choosing a credit counseling organization, the organization will pair you with a credit counselor toDuring your credit counseling session, you’ll receive feedback on how to improve your personal situation. According to Nitzsche, a credit counseling session may include …
Free budgeting help (beware of organizations — even those with “nonprofit” status — that charge for educational materials and workshops)
A free review of your credit report(s)
Next steps on how to improve your financial situation
Referrals to other tools and resources
Depending on your situation, a credit counselor may suggest a debt management plan (DMP), which can help you get out of debt faster, typically by lowering your interest rates and setting up a payment schedule. This is typically a last resort, so beware of credit counselors who push this as the first or only option.
Once you have a plan in place, your credit counselor may follow up with you to see how the plan is going. If you need additional assistance, you may be able to schedule another follow-up session, as well. get started.
Tip: If you are having trouble making payments on your debts, a credit counselor may be able to help you with advice or by organizing a “debt management plan” for all your debts. Typically, under a debt management plan you make a single payment to the credit counseling organization each month or pay period and the credit counseling organization makes monthly payments to each of your creditors. Under debt management plans, credit counselors usually do not negotiate any reduction in the amounts you owe–instead, they can lower your overall monthly payment. They do so by negotiating extensions of the periods over which you can repay a loan and by asking creditors to lower the interest rates and waive certain fees.