Non-Profit Credit Counseling

What a credit counselor actually does

A non-profit credit counselor sits down with you — by phone, online or in person — and goes through your income, your bills and your debts. The first session is free at reputable agencies, and it ends with a written budget and a set of options. For many people that's all they need.

If you're juggling several unsecured debts — credit cards, medical bills, some personal loans — the counselor may propose a debt management plan. You make one payment a month to the agency, the agency pays your creditors, and creditors often agree to lower interest rates and waive fees in return. Plans usually run three to five years and carry a modest monthly fee that varies by agency and state, with waivers for hardship.

What it doesn't do

A counselor can't make debt disappear, can't stop a lawsuit that's already filed, and can't put a payday loan or a tribal loan into a debt management plan if the lender won't participate — many won't. Anyone who promises to "settle your debt for pennies" or asks for a large upfront fee before doing anything is not a non-profit credit counselor, whatever the website says.

How to find a real one

Look for an agency that is a member of the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA), and that is approved by the U.S. Trustee Program (the list is on justice.gov). Counselors should be certified. The first consultation should be free, and they should be willing to explain every fee before you sign anything.

When it's the right move

If you're behind on more than one bill and borrowing to keep up, a counselor is usually a better first call than a lender. If you're facing a single one-time shortfall with income that covers everything else, you may not need one — the free-help and PAL steps may be enough.

Debt settlement is a different thing

For-profit debt settlement companies tell you to stop paying your creditors while they negotiate. Your credit takes the hit, fees pile up, and there's no guarantee creditors will settle. The Consumer Financial Protection Bureau has warned about the model repeatedly. If someone offers to "settle" your debts, ask whether they're a non-profit credit counseling agency; if not, be careful.