What Is Credit Counseling?

When you’re overwhelmed by debt, it can be hard to know where to start. Should you consolidate? Negotiate? Pay off the smallest balance first? Sometimes the most helpful thing isn’t a product or a strategy — it’s talking to someone who understands the options and can help you figure out which one fits your situation.

That’s what credit counseling is. And when you work with the right organization, it can be one of the smartest moves you make.

What Credit Counseling Actually Is

Credit counseling is professional financial guidance provided by certified counselors — usually through nonprofit agencies. These counselors are trained to help you understand your debt, create a budget, and evaluate your options for getting out of debt.

A credit counseling session is not a sales pitch. A legitimate counselor will review your full financial picture — income, expenses, debts, assets — and help you understand what paths are available. They might recommend a specific strategy, connect you with resources, or suggest a debt management plan. But the goal is to educate and guide you, not to sell you something.

Most initial sessions are free or very low cost (typically $10-$50). They can be done in person, over the phone, or online. A session usually lasts 30 to 60 minutes.

How to Find a Legitimate Counselor

The main accrediting body for credit counseling agencies in the United States is the National Foundation for Credit Counseling (NFCC), which has been around since 1951. Agencies accredited by the NFCC must meet strict standards for counselor certification, financial transparency, and client service.

You can find an accredited counselor through:

• NFCC.org — Search by ZIP code for a member agency near you
• The U.S. Department of Justice — Maintains a list of approved credit counseling agencies (required if you’re considering bankruptcy)
• Your state Attorney General’s office — Can confirm whether an agency is properly licensed in your state

Sticking with NFCC-member agencies or agencies approved by the Department of Justice is the safest way to ensure you’re working with a reputable organization.

What Happens in a Counseling Session

A typical first session covers:

1. Income review. The counselor looks at all your sources of income — wages, benefits, side work, anything coming in.
2. Expense review. You go through your monthly spending together. This often reveals areas where small changes can free up money for debt payments.
3. Debt assessment. The counselor reviews all your debts — balances, interest rates, minimum payments, and whether any accounts are in collections or past due.
4. Options discussion. Based on your situation, the counselor explains what strategies might work. This could include a debt management plan, a specific payoff strategy, consolidation, or in some cases, a referral to a bankruptcy attorney.
5. Action plan. You leave the session with a clear next step — whether that’s enrolling in a program, adjusting your budget, or taking a specific action on your own.

The counselor should explain everything in plain language and answer your questions without pressure. If you feel rushed or pressured to sign up for something, that’s a red flag.

Debt Management Plans (DMPs)

If your counselor determines that you’d benefit from more structured help, they may recommend a debt management plan. A DMP is a formal program where the counseling agency works directly with your creditors to restructure your unsecured debts (credit cards, medical bills, personal loans).

Here’s how a DMP works:

1. The agency negotiates with your creditors to reduce your interest rates and waive certain fees. Rates on a DMP are commonly reduced to somewhere between 0% and 8%, depending on the creditor.
2. You make one monthly payment to the agency. Instead of paying each creditor separately, you send a single payment to the counseling agency each month.
3. The agency distributes payments to your creditors. They pay each creditor according to the negotiated terms.
4. The plan lasts 3 to 5 years. By the end, your enrolled debts are paid off in full.

DMP Costs

Most agencies charge a modest monthly fee — typically $25 to $50 per month — to administer the plan. Some agencies also charge a small setup fee. Many will reduce or waive fees based on financial hardship. These are not the same as the large upfront fees charged by debt settlement companies.

What a DMP Does to Your Credit

This is where the difference between credit counseling and debt settlement really matters. On a DMP, you’re paying back the full principal of your debts. You’re not settling for less. Your accounts may be noted as being on a “debt management plan” on your credit report, but this notation is neutral — it’s not treated as a negative by most scoring models.

The key factor is payment history. If you make all your DMP payments on time, your credit can actually improve over the course of the plan because you’re building a consistent record of on-time payments while reducing your overall debt.

One thing to know: most DMPs require you to close the credit card accounts enrolled in the plan. You won’t be able to use those cards while you’re on the plan. This can temporarily affect your credit utilization ratio, but the long-term benefit of paying off the debt usually outweighs this.

How a DMP Differs From Debt Settlement

People often confuse these two, but they’re very different:

	Debt Management Plan	Debt Settlement
What you pay	Full principal, reduced interest	Reduced principal (40-60% typical)
Who runs it	Nonprofit credit counseling agency	For-profit settlement company (or DIY)
Monthly cost	$25-50/month	15-25% of enrolled debt or savings
Credit impact	Neutral to positive (if payments made on time)	Negative (missed payments, settled status)
Timeline	3-5 years	2-4 years
Tax consequences	None	Forgiven amount may be taxable

A DMP is generally the better option if you can afford to repay what you owe at a reduced interest rate. Settlement is typically a last resort for debts you truly cannot repay.

Red Flags: How to Spot a Scam

The credit counseling industry has legitimate organizations doing great work — but it also has companies that take advantage of people in difficult situations. Watch out for these warning signs:

• Large upfront fees. Legitimate agencies charge little or nothing for an initial consultation. If someone wants hundreds or thousands of dollars before they’ve done anything, walk away.
• Guarantees. No one can guarantee they’ll reduce your debt by a specific amount or settle all your accounts. Promises like “We’ll cut your debt in half” are a red flag.
• Pressure to sign up immediately. A legitimate counselor will give you time to think and will encourage you to compare options. High-pressure sales tactics mean you’re talking to the wrong organization.
• Lack of transparency. A reputable agency will clearly explain their fees, how the program works, and what to expect. If you can’t get straight answers, move on.
• Not accredited. If the agency isn’t a member of the NFCC or another recognized accrediting body, be cautious.

You can also check with your state Attorney General’s office or the Better Business Bureau for complaints against any organization you’re considering.

Frequently Asked Questions

Is credit counseling the same as financial coaching or therapy?

Not quite. Credit counseling focuses specifically on debt and credit issues — it’s practical and action-oriented. Financial coaching is broader and might cover saving, investing, and long-term planning. Financial therapy addresses the emotional and behavioral aspects of money. There’s overlap, but credit counseling is the most directly focused on helping you deal with existing debt.

Will credit counseling show up on my credit report?

The counseling session itself doesn’t appear on your credit report. If you enroll in a debt management plan, your accounts may be noted as being managed through a DMP. This notation doesn’t directly hurt your score, and consistently on-time payments through the plan will help your credit over time.

Can credit counseling stop collection calls?

Not directly. Credit counselors can’t force collectors to stop calling you. However, if your debts are enrolled in a DMP and payments are being made, creditors often reduce or stop collection activity because they’re receiving regular payments. For debts already in collections, the counselor can help you understand your options and rights under the FDCPA.

Bottom Line

Credit counseling from a nonprofit, accredited agency gives you a clear-eyed look at your financial situation and a map for moving forward. If your debts are manageable but overwhelming, a debt management plan can lower your interest rates and simplify your payments — all while keeping your credit intact because you’re repaying what you owe in full. Start by finding an NFCC-member agency at NFCC.org, and be on guard for the red flags that separate legitimate help from companies looking to profit from your stress.