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How Credit Counseling Works

Credit counseling helps to reestablish your credit by setting up an affordable debt repayment plan with all of your creditors.

Credit counseling agencies usually offer 3 services:

1- Assess Your Current Financial Situation

Trained credit counselors will look at your income and expenses and outline ways to meet your obligations. It may be that you simply need to cut back on some expenses or manage your cash better. A credit counselor can show you how and help you work out a plan.

If needed, the next step is...

2- Debt Restructuring & Repayment

The credit counselors contact your creditors on your behalf and negotiate with them to develop a payment schedule that both you and your creditors can live with. They may agree to accept a smaller payment per month or freeze or lower the interest on the outstanding balance. Once a payment schedule has been agreed upon, you make a monthly lump-sum payment to the credit counseling agency. The agency then distributes the monies to your creditors, according to the schedule that had been mutually agreed upon. The creditor will not try to contact you for debt collection and will work directly with the credit counselor.

3- Credit Education

Learn how to manage your income and expenses, use credit wisely, develop a financial plan for the future, and more.

Credit problems can be avoided altogether if you know how. Many credit counseling agencies hold courses on budgeting, debt management and other personal financial skills.

What About Fees?

There is usually no cost for not-for-profit credit counseling services, although some agencies may charge a small monthly administrative fee to manage a debt repayment plan.

It's easy to find a credit counselor. Some credit counseling agencies are available 24 hours a day, 7 days per week, via telephone, or the Internet - right from the privacy of your own home. You can also find a convenient list of credit counselors in our Credit Counselor Directory.

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