How Does Consumer Credit Counseling Services Work?

By Todd Kunsman

Money Basics

Published on

Updated on

Sometimes getting out of a financial rut, paying debt, and building up your credit can be tough. 

This can be especially stressful if your living paycheck to paycheck, your bills keep piling on, and there seems to be no end to any debt you have accumulated. 

While it can be frustrating and maybe worrisome, you are not alone. For example, in a survey from the National Foundation for Credit Counseling, 60% of consumers had credit card debt in the last 12 months, with 37% carrying it over month after month. 

So what can you do if you find yourself in financial trouble?

While it is entirely possible to do it on your own, it can be a daunting task to know where to start. One of the places you can turn for help is consumer credit counseling services.

What Are Consumer Credit Counseling Services?

Consumer Credit Counseling Services (CCCS) are typically non-profit services funded by grants and this service exists to help you work through realistic solutions for your financial problems. There are a number of programs available that offer help with your debt, credit, budgeting, and much more. 

Why You Might Need Consumer Credit Counseling 

Sometimes, your debt and finances can spiral out of control. Individuals may take out loans to cover other repayments and before you know it, you don’t even know how much is owed, or to who. 

Next thing you know, your credit score has tanked and you have debt collectors calling you looking for thousands of dollars in owed money. This can destroy your good credit score and follow you around for years until resolved. 

While declaring bankruptcy could be an option, this should not be your first resort. Instead, you should contact a consumer credit counselor if you need help. But if you have declared bankruptcy, a consumer credit counseling service can help you navigate the process. 

Consumer Credit Counselling Services might work for you if:

  • You are behind on monthly payments (or don’t know how much makes sense to pay)
  • Have been contacted by debt collectors
  • You don’t know which debt to tackle first
  • You have excessively high-interest rates
  • You can’t keep up with the different lines of credit you’ve opened
  • Your credit score is extremely low and needs a plan to improve it
  • You have filed for bankruptcy but need counseling to navigate it
  • You have no clue where to start or how to navigate a budget
Tip: Want to check your credit score for free, see any loans in your name, and even see any debts? Sign-up for Credit Sesame, Credit Karma, or both. You can log in as much as you want, get recommendations, and understand your credit scores. 

How Much Does Consumer Credit Counseling Services Cost?

Access to Consumer Credit Counselling Services is usually free of charge, as these are non-profit companies. However, there are a number of add-on services, such as a debt management program, which may be subject to a one-off fee. If you need more services you can expect anywhere from $40 – $200. 

Is credit counseling worth the cost?

Consumer credit counseling services work because they have a great relationship with many lenders and banks, so the fee is generally used to contact credit organizations and offer benefits that you would otherwise not be eligible for.  

There are a wide number of credit counseling services available, but these vary in reliability and price. However, credit counseling can be worth the cost because it can not only be useful for people experiencing a financial crisis (bankruptcy or foreclosure), but help educate people to ensure they avoid potential disasters. 

How Does Consumer Credit Counseling Work?

Typically, the consumer credit counseling agency will start by assessing your financial situation and your budget (if you have one). You’ll provide access to your income, and they will be able to analyze any debts you might have. 

The Consumer Credit Counseling agency will also work with you to draw up a good idea of where your outgoings go every month, and how much this might be. 

Your counselor will also run a “soft search” credit check on you. This means that they get access to anything you may have missed, and can see which companies or items of notes are associated with you. 

Next, you’ll focus on debt management or payment restructure. If this applies to you, your counselor will work out the maximum payment you can afford each month to start paying down your debt. 

They might also reach out to your credit companies to change the date of payment. One common strategy for debt management is for the individual to pay the total amount to the counselor, who then takes care of paying each individual debt. This simplifies the process. 

Alternatively, a counselor may advise you on which lines of credit to tackle first, based on their interest rates, for example. The service can probably refer you to different tools and resources that can help your situation further. 

Finally, your consumer credit counselor will sit down with you and work on financial education

You might discuss: 

  • How to budget effectively
  • Filing for bankruptcy
  • How to build a financial plan

How Do You Select A Consumer Credit Counseling Service?

There are a few scams or non-ethical consumer credit counseling services out there that you may come across during your research for a service. The best thing you can do to protect yourself is doing your research. 

Make sure that your choice is certified and accredited by the National Foundation for Credit Counseling, check out the Better Business Bureau, and look at the Financial Counseling Association of America. 

Plus, you can ensure it is approved by the United States Trustee Program

Next, ensure that there are options available in terms of programs offered and that not all the services cost you money to access. There can be extra services that have a fee, but many services are offered at no-cost. 

Prepare some questions when you meet with potential candidates, such as: 

  • Does it cost me to access these services? 
  • What services and educational material are free?
  • What services might cost money?
  • Are your counselors certified?
  • What programs are available?
  • How can you help avoid future financial troubles?

Any agency or service that is vague or avoids your questions should be avoided themselves. And this is especially true if they ask for a fee first before they can answer any of your basic questions. Some will even “guarantee” to improve your credit score by a set number or percentage. This is likely a scam. 

Next, it’s important to work with a counselor who makes you feel comfortable. Remember that as most of these services are free, you are welcome to try out more than one counselor if you don’t feel comfortable. 

Best credit counseling services

While you will want to do your own research for the best credit counseling services, below are a few you might want to consider. Each has various and similar services, but which you potentially choose will depend on your needs and what you value.

Is Credit Counseling Bad for Your Credit?

Consumer credit counseling is not bad for your credit. Qualifying for credit counseling only requires a soft check, which does not impact your overall credit score. Plus, it does not impact your ability to qualify for new lines of credit. 

But, if anything, credit counseling should improve your overall credit score. You may experience a few point drops as you get started, but over the long-time, you will see significant improvements to your score and overall financial health. 

The tips and techniques taught in these sessions can help you make consistent payments and significantly decrease your debt, which should have a positive impact on your credit score. 

Should I Use A Credit Counseling Service?

Connecting with a consumer credit counseling service can be a great first step to reclaiming your financial health and removing burdens that have caused you stress. Learning about the services offered, any costs, and the process of credit counseling is the best way to become more comfortable and learning how you can improve your personal finances.

Although you can contact creditors directly to negotiate payment terms and interest rates, you might be intimidated or unsure how to talk with them about your accounts. You can also use a service like Tally or Billshark to help navigate debt and bills — but there are limits with what the services can do.

This is where working with a credit counselor can provide significant value and guidance to ensure you are comfortable.

Additionally, these counselors can help you with your budget and create better guidance to getting your spending in control and ensure you stay on track with your financial goals.

If you are overwhelmed, unsure how to navigate finances, need help with debt, and need the guidance — a credit counseling service could definitely be worth exploring.