by Rachel Christian, CEPF®
Senior Writer
When you’re struggling with debt, it’s hard to know where to turn.
High fees, finance charges and missed payments add up quickly.
Before you know it, you’re drowning.
If you’re afraid you can’t make your debt payments each month — or you feel like you’ll never get out of credit card debt — working with a nonprofit credit counseling agency can help.
Most reputable credit counseling services are provided by nonprofit agencies.
They offer a variety of services, including general financial advice, homeownership counseling and debt management plans.
You can find credit counseling agencies at local offices, online and/or over the phone.
Trained credit counselors can review your financial situation — including your credit card debt — and make recommendations to improve it.
As an impartial third party, credit counselors can also help you organize your credit accounts, obtain a credit report and develop a budget.
Here are the main services credit counseling agencies offer, so you can decide whether it’s beneficial to work with one.
Credit counseling agencies are perhaps best known for helping you create a debt management plan.
A debt management plan rolls all your debts into one monthly payment to make it easier to manage.
You’ll make a single payment to the credit counseling organization each month or pay period and the organization will work with your creditors to make sure everyone gets paid on time.
Debt management plans usually don’t reduce your credit card debt, but they can help lower your overall monthly payment by negotiating extensions of the periods over which you repay a loan.
Debt counselors can also ask creditors to reduce your interest rates by as much as half, or to waive certain fees.
You won’t be able to keep racking up debt, either — your lines of credit will be closed or suspended while you’re in a debt repayment plan.
After you set up a debt management plan, the debt counselor will work with your creditors to stop them from pursuing collection efforts or charging late fees while you’re on the plan.
Even if a debt management plan isn’t right for you, a credit counselor can still provide money management advice, financial education and other services to improve your overall financial health.
They can help you create a budget, teach you ways to save money and define your financial goals.
Or a debt counselor can review your credit report and help you dispute errors. (This is especially helpful if you’ve been a victim of identity theft.)
They can also guide you toward free educational resources on money management to help boost your financial know-how.
A credit counseling agency can assist with bankruptcy counseling, student loan counseling and homeownership counseling.
For example, a debt counselor can help you explore your student loan repayment options or facilitate a conversation with your loan issuers.
Many nonprofit organizations also offer housing counseling for first-time homebuyers. They can help you avoid foreclosure or teach you about reverse mortgages. They offer advice for renters, too.
You can reach a free counselor certified by the U.S. Department of Housing and Urban Development by calling 888-995-4673.
Your first meeting with a credit counselor, whether in person or over the phone, should last about an hour.
Prepare for the meeting by gathering accurate and complete information about your finances.
Your initial session will cover the nitty-gritty details of your budget, from a mortgage to child care costs, so the more you can prepare for the meeting, the better.
After the meeting, the debt counselor will typically provide a written report with the details of your situation and recommendations.
This financial review won’t be packed with surprises. It will recap what you discussed and explain the next steps.
Just because a credit counseling agency operates as a nonprofit organization doesn’t mean all its services are free.
You can expect a setup fee of no more than $50 to participate in a debt management program, as well as a monthly plan fee between $30 and $50.
Most credit counseling agencies offer services for free or at a reduced rate to clients whose household income is less than 150% of the federal poverty level.
A credit counseling agency must disclose upfront whether it can provide services at a free or reduced rate, depending on your income.
The cost of credit counseling services varies by agency, location and individual financial need.
Before you commit to anything, confirm how much you’re expected to pay so you fully understand the overall cost.
Reputable credit counseling agencies will be happy to provide information about their services for free, without requiring you to disclose your financial situation.
Initiating a debt management plan could cause a dip in your credit score because it indicates you’re struggling with your finances.
But as you build a payment history through the plan, your score will likely improve.
A credit counseling service is different from a debt settlement or relief company. For one, credit counseling services are typically nonprofits. Debt settlement agencies are for-profit businesses.
Many colleges, military bases, credit unions, housing authorities and extension service offices operate nonprofit credit counseling programs.
To find a reputable credit counselor near you, check out the Financial Counseling Organization of America or the National Foundation for Credit Counseling (NFCC).
Each maintains a directory of member organizations — most of them nonprofits — that serve a variety of needs.
Both organizations also have certification and accreditation requirements to ensure quality among counselors.
The Consumer Financial Protection Bureau (CFPB) recommends that you ask potential credit counselors these questions:
Be sure to get everything in writing and read the fine print before signing up for any service.
The CFPB recommends avoiding organizations that pressure you into a debt management plan before fully considering your financial situation.
That’s why it’s smart to shop around for a credit counseling agency you feel comfortable working with.
Remember: You can always try a free initial session at more than one agency before picking one that’s right fit for you.
If you’re searching for credit counseling, you may encounter the term “debt counseling.”
What’s the difference?
The short answer: Nothing. The terms are interchangeable.
However, don’t confuse “debt counseling” services with “debt settlement,” “debt consolidation” or “debt relief” for-profit companies, which charge you a fee to arrange a settlement of your debts with creditors.
Debt settlement companies are often marketed as a “quick fix” for people drowning in credit card card debt — but they’re usually not a good idea.
For example, some debt collectors won’t work with a debt relief company, which often advises clients to stop making their regular payments so they can save up the money for a lump-sum payment.
Debt settlement companies are also notorious for making promises they cannot keep and engaging in other illegal conduct, like charging fees before obtaining any settlements, according to the Federal Trade Commission.
For this — and other reasons — it’s best to avoid working with debt settlement companies.
Credit counselors do not negotiate a reduction in the amount you owe to a creditor, but they may be able to help lower your monthly payments.
You don’t need to be on the road to bankruptcy (debt counseling is required before filing Chapter 7 or Chapter 13 bankruptcy) to work with a credit counselor.
However, working with a credit counseling organization is just one way to deal with debt — and it may not be right for you.
Here are other alternatives to credit counseling.
If you can afford the typical hourly rate, a financial advisor can design a blueprint to help you get out of debt. Financial planners won’t negotiate your balance or interest rates, but meeting with one won’t affect your credit score either.
As a bonus, if you find a financial planner you like, you can continue to work with them after you’re out of debt.
A certified financial planner is a specific type of financial advisor who is bound by a strict code of ethics. They follow a fiduciary standard, which obligates them to work in your best interests.
Certified financial planners charge an hourly rate, but they will never pressure you to buy a product or investment, and their advice is unbiased.
Instead of paying a company to talk to your creditors, you can do it yourself for free.
Even if you’ve tried to negotiate with a credit card company in the past, it never hurts to give it another shot.
You may be able to consolidate your debt or negotiate your credit interest rates.
Be persistent and polite.
And remember: Your goal is to negotiate a modified payment plan that reduces your monthly bill to something you can afford.
If you’re not sure whether you’re ready to talk to someone about your credit or debt concerns, you can take steps to improve your financial situation on your own.
The first step? Creating a strict budget and sticking to it.
Or you may simply need a nudge to choose a debt payoff method — snowball versus avalanche, anyone? — and stick to the plan while you make steady progress.
After all, a little financial education can go a long way.
Need some help making a budget? There are many free budgeting apps out there that can help you track your expenses.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
 Editor Tiffany Wendeln Connors and former senior writer Lisa Rowan also contributed.
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