Credit Counseling FAQs: What is Credit Counseling?

Debt is a big black hole that millions of Americans find themselves being pulled into every year. It can obliterate your credit score, leave you stressed, angry, and feeling like you have nowhere to turn. Credit counseling was created to provide an outline, an opportunity, an escape.

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Often provided as a free service by nonprofit organizations, credit counseling is a financial-focused advisory service designed to help you manage your debts and the stress that goes with them.

What Credit Counseling Service is the Best?

When searching for a reputable counselor, take your time, check reviews, and see what the different companies have to offer you.  

  • How Long Does It Last? Credit counseling begins with a phone call, which typically takes between 20 and 60 minutes. 
  • How to Start? Look for a company that provides a free credit counseling service, even if their goal is to get you to sign up to their program. If they start pressure selling, you can always hang-up.
  • Is it Free? The initial credit counseling program should always be free, but there may be some costs involved with any programs that they refer you to.

What Does it Do?

The goal is to help you get your finances under control. A credit counselor will ask for details of your incomings and outgoings, before trying to pinpoint where you might be going wrong. They will give you some free advice regarding budgeting and may also review your credit report with you.

Many credit counseling services will aim to sell you additional materials, including webinars, workshops, and books. This is true even for so-called “nonprofit” counselors. Remind them that you’re heavily in debt and can’t afford to spend any money right now. If they start pressure selling and you don’t feel comfortable, you can always end the call.

Does it Work?

Credit counseling may seem like an oversimplified way of fixing a very complicated issue, but it really can help. Many debtors have their heads in the sand. They can’t envisage a way out and may not even know how much debt they have. It’s common to feel this way but getting some insight into your situation can really help and that’s what credit counseling provides.

Not only do they force you to take a cold, hard look at your finances, but they can advise where you might be going wrong, what you need to do to fix it, and more. They may then suggest a debt management plan, which is created in combination with your creditors to help you manage your debts better.

Is Credit Counseling a Good Idea?

It’s a great idea, especially if you have no deliquesces or other major issues and are looking for a simple solution. In this sense, credit counseling can be seen as a first resort, one you take before considering debt consolidation or debt settlement.

Unlike consolidation and settlement, your credit score won’t take a hit and there are (usually) no costs involved.

Is Credit Counseling Bad for Your Credit?

An initial credit counseling session will not appear on your credit report and will therefore not impact your score. If you agree to a debt management program then a note may be added to your report alongside that specific debt, but this should not reduce your score. 

Of course, it’s a different matter entirely if you fail to make payments on time and the debt becomes delinquent.

How Long Does It Remain on Your Credit Report?

Credit counseling notes will remain on your credit report throughout your enrollment period and for five years afterwards.

What Can it Help With?

Credit counseling can help with all forms of debt. Unlike debt settlement, the goal is not to clear these debts with a single payment, nor will it look for loopholes so they can be forgiven. Instead, it will teach you how to manage them better, before potentially putting you on a debt management plan that makes repayments more affordable.

Credit counseling can help with all the following and more:

  • Car Loans
  • Personal Loans
  • Payday Loans
  • Student Loans
  • Credit Card Debt

As for how it can be used:

  1. Can it Stop Wage Garnishing? Legally, no. If a court has ordered that wage garnishing should take place, there’s very little you can do. If not, your counselor may be able to convince a creditor to pursue a different course of action.
  2. Can it Stop a Lawsuit? They can advise on what you can do to prevent the lawsuit, if indeed it can be prevented, but simply signing up for a credit counseling service will not stop a lawsuit from going forward.
  3. Can It Clean my Credit Report? A counselor may advise regarding how you can dispute mistakes on your report and in the long-term they can make changes that improve your score and clean your report. However, there is no magic wand they can wave to fix your score in the short-term.

How Much Can a Credit Counselor Save Me?

A credit counselor won’t help you to save huge amounts like a debt settlement program will. The goal and the process are different, and unless you’re making huge mistakes that a counselor can spot and remedy, you won’t save a great deal.

However, they will help you to make your debt more manageable and may save you some money by agreeing to new terms with your creditors.

Is Credit Counseling Needed During Bankruptcy?

In the majority of cases, you will need to apply for credit counseling before receiving bankruptcy protection. You will also be required to undertake some form of financial education, helping you to better understand money and debt management and thus reducing the chances of a future bankruptcy filing.

It’s worth noting, however, that there are two main forms of personal bankruptcy and each state has their own laws governing how these are filed.

How Can I Find Credit Counseling:

For Seniors? There are a few options, including the National Foundation for Credit Counseling.