Credit Counseling: How to Get Help Paying Off Debt

Sep 12, 2023

Credit counseling firms help consumers who are struggling with debt payments to create a personalized plan to get back on track.

If you’re feeling like your finances are out of control and you can’t keep up with debt payments. You’re not alone. Many people find themselves in a similar position, especially as the cost of living and interest rates increase. Fortunately, there are solutions like credit counseling that can help you tackle your debt and get your money back on track. Working with a trusted agency can give you peace of mind and a renewed sense of financial security.

What is Consumer Credit Counseling?

Consumer credit counseling is a service that helps people who are struggling with money management, budgeting, credit, debt, or other personal financial issues. Credit counseling organizations are usually non-profit firms with trained agents who can review your financial situation and help you create a personalized plan to solve your problems.

Depending on your specific needs, credit counselors may negotiate with your creditors to lower your interest rates, waive late fees, or create a repayment plan that works for you. They can also provide financial education and advice to help you understand money management principles so you can make better decisions in the future.

What to Expect

Most credit counseling agencies offer a free consultation to review your finances and discuss the options available to you. A reputable firm will give an honest recommendation, even if their services aren’t the best fit for you.

When you contact a firm for a consultation, here’s what you can expect.

  • Initial Assessment. The process usually starts with a review of your financial situation. Have details about your income, expenses, and your debt available to get the most out of your assessment.
  • Budget. If you need it, a credit counselor can you create a budget that works best for your income and expenses. This includes helping you spot areas where you can reduce spending and better manage your money.
  • Debt Review. The counselor will review your credit cards, loans, and other debts to determine where you currently stand.
  • Recommendation. If it’s appropriate for you, the counselor may recommend a debt management plan to help with your debts. Under a debt management plan, the counselor will negotiate with creditors to potentially lower interest rates and create a repayment plan that’s affordable for you.
  • Education. Credit counseling often includes financial education on a variety of topics like credit management and savings strategies. A solid understanding of personal finance will help you make better financial decisions in the future.

What is a Debt Management Plan?

A debt management plan, or DMP, is a financial plan to pay off your debts. The credit counseling agency creates the plan based on your finances and minimum payments negotiated with your creditors. Under the plan, you make one lump sum payment to the credit counseling agency each month and they pay each of your creditors the agreed amount.

There’s typically a small monthly fee associated with the DMP, but it should be affordable. You’ll have to stop using your credit cards while you’re on a DMP—that’s part of the agreement with your creditors in exchange for lowering your interest rate and monthly payment.

Benefits of Consumer Credit Counseling

Working with a credit counseling agency has a number of benefits that will help you in the short- and long-run.

Help paying off debt

Credit counseling can help you create a budget and a debt management plan that can help you get out of debt faster. A credit counselor will work with you to create a personalized plan based on your income, expenses, and debt. Typically, the goal is to pay off your debt within three to five years.

Lower interest rates

If you have high-interest credit card debt, a credit counselor may be able to help you negotiate lower interest rates with your creditors. A lower rate helps you save money on interest and pay off your debt faster than you would at the regular interest rate. This is especially beneficial if you’ve had your interest rate increased to the penalty rate

Improved financial literacy

Credit counseling can provide you with financial education and resources to help you understand how to manage your money and make better financial decisions. You may learn about budgeting, saving, credit and loans, housing, and more.

Help avoiding bankruptcy

Bankruptcy can have long-lasting effects on your credit score and your ability to get credit in the future. Credit counseling can help you avoid bankruptcy by providing you with alternative solutions to your debt problems. If bankruptcy is inevitable, credit counselors can provide you with tools and resources to re-establish your credit and financial security.

Improved credit score

If your debt and finances have affected your credit score, credit counseling can indirectly help you raise your score over time. By following a debt management plan, you can increase your on-time payments and lower your outstanding debt—two factors that have the biggest impact on your credit score. Along with good debt management, improving your financial management skills will help you stay on top of your credit in the future. While credit counseling may show up on your credit report, it doesn’t hurt your credit score.

Help navigating life changes

Major life changes like disability, divorce, or job loss can make it difficult to manage your expenses. Working with a credit counselor can help you rebuild your budget or work with your creditors to create a new payment plan based on changes to your income or expenses. Credit counseling can also be a good option to seek if you recently experienced a disaster, are facing foreclosure, or need help with resuming student loan payments.

How to Choose a Credit Counseling Agency

There are dozens of credit counseling agencies to choose from, so researching and comparing options is important. Beware of scammers and dishonest companies in your search. Here are a few of the steps recommended by the Consumer Financial Protection Bureau.

  • Check Accreditation. Look for a credit counseling agency that’s accredited by a national non-profit network like the National Foundation for Credit Counseling (NFCC), the American Consumer Credit Counseling (ACCC), or the Financial Counseling Association of America (FCAA).
  • Review Fees and Services. Even non-profit credit counseling agencies charge fees for their services, though many will lower or waive the fee if you can’t afford to pay. Make sure you understand the fees before you sign up for their services.
  • Ask Questions. Ask about the the process, the risks and benefits, typical timing, and any other questions to help you get a feel for whether its a company you want to work with.

Founded in 1991, Navicore Solutions is a nationwide nonprofit financial counseling agency. The firm holds an A+ rating with the Better Business Bureau and is a member of National Foundation for Credit Counseling (NFCC). Navicore assist tens of thousands of consumers each year through in-person and telephone counseling across the United States.

Alternatives to Credit Counseling

Consumer credit counseling isn’t the only option for dealing with your debt. It’s worth considering the pros and cons of other debt management options before moving forward.

  • Debt consolidation involves combining your outstanding debts with a new loan or credit card balance transfer. Your balance may be easier to pay since you’ll have a single monthly payment, but you may not save time or money depending on your balance and the terms of the loan or credit card
  • Debt settlement aims to save money on your debt by requesting a balance reduction from your creditors. You can work with a debt settlement company or negotiate on your own, but there’s no guarantee your creditors will agree to lower your balance.
  • Bankruptcy eliminates your debt via court order. Depending on the type of bankruptcy you file, you may have to repay some of your debts before getting a discharge. Bankruptcy can have a long-lasting damaging impact to your credit score, so it’s typically considered a last resort.