Dealing With Debt: Credit Counselors

By Stacy Johnson. Last updated 22 October 2017. 8 comments

If you're in debt trouble, get help.

I just published my third book about living debt-free. It's called Life or Debt 2010. To go with it, I'm doing TV news stories and writing blog entries that I hope will help you find extra money in your budget to pay off debt.

But this story is for people who can't think about embarking on a debt-destroying mission yet because their debt is currently destroying them. If you've got creditors calling, are behind on your payments, and basically just not making it, you need to find help, and the sooner the better. But what kind? There are three heavily-advertised options these days: credit counseling, debt settlement, and bankruptcy. (In fact, notice the Google ads all around this article right now!)

Over the next few days we'll take a closer look at each, starting with credit counseling.

Have a look at the 90-second news story below, then I'll go into more detail on the other side.

Credit Counseling

One of the first news stories I ever did 20 years ago was about credit counseling. Over the years I've done plenty more and have gotten involved with them in other ways as well: I'm on the advisory board of one local counseling agency, I've produced video and sold books to others, and several sponsor my news stories in various cities nationwide. Suffice to say this is a business I know quite well.

And they're a great way to get help with debts. There's no shortage of them out there, and many will help you for free. But look before you leap.

Open your yellow pages or look online for "credit and debt counseling" and you'll see lots of companies that seem to be falling all over themselves to bring you back from the brink of debt destruction. They're all over the TV and radio these days. Many wave the nonprofit banner like a flag and promise to reduce your interest rates, or even get the amount you owe cut in half. Some claim their services are free, or nearly free. So how do these things work?

Credit counselors typically help by putting you on a Debt Management Program, also known as a DMP. When you participate in a DMP, the agency is essentially getting between you and the people you owe, most often credit card companies. They contact your creditors and attempt to negotiate lower interest rates, get penalty fees waived and arrive at a monthly payment you can actually afford. Once your plan is approved, you send one check to the counseling agency every month and they divide the money among your creditors. It's not a quick fix — a typical DMP lasts three to five years.

Most counseling agencies give free advice, but if you end up in a DMP, you'll typically pay a small monthly fee to get it set up (0-$50) and monthly fees (5-10% of your debt payment, but normally capped at $25-$50).

But here's something important to know: the monthly fees these agencies collect aren't what keeps them alive. They're also getting paid by the banks whose accounts they're collecting. In years past the percentage they got was 10 to 12 percent of the debt. In recent years, that percentage has declined considerably, and some major banks have started handing out grants instead. Still, it's banks that supply the primary support for this industry, and historically that's largely been through debt management programs.

Why do you care? Well, since credit counselors make a large part of their income from putting you on a DMP, they obviously have a powerful incentive to do so. It could be a problem, since sometimes that might not be in your best interests. Other options, like repaying your debt without a DMP, or declaring bankruptcy might be better in some instances, but credit counselors don't get paid by recommending either.

That doesn't mean you shouldn't approach these folks. There are plenty of agencies that dispense honest, objective advice, including advice that ultimately doesn't pay them. But if you're not careful, you could get hooked up with a "DMP mill." These are companies that typically do a lot of advertising and put virtually everybody on a debt management program simply to make money. If your problem includes bills that don't qualify for a DMP (like a mortgage or car loan, for example) they won't help you with them. They also won't offer any type of budget counseling. And if your situation is so tenuous that bankruptcy should be a consideration? You'll never hear that suggestion from them.

For the DMP mill, it only takes a few minutes to sign you up for a program, and if you ultimately have to file bankruptcy anyway, who cares? You'll have wasted your time and tons of money, but they'll have collected their money for as long as you were able to stick with the program. And like most other credit counselors, they too are non-profit, lulling many into a false sense of security.

The way a credit counseling agency should work is that they should counsel you regarding all your debts and present you with all your options before you do anything that you can't undo. In other words, they should counsel you, not slam you into the only fix that makes money for them.

A quality credit counseling organization will also help with simple, free advice and other non-debt, credit-related issues. Here's an interesting story I did where a credit counselor helped untangle a credit card billing mess.

Specific Recommendations

I'd look for a credit counseling agency that belongs to one of two trade associations: the National Foundation of Credit Counselors (NFCC), or the Association of Independent Credit Counseling Agencies (AICCCA). I personally know many members of both of these organizations and in my experience, they're normally credible and well-intentioned. You can find NFCC members near you at their Find a Counselor Now page. You can find AICCCA members near you by using their state by state lists.

Full disclosure: as I mentioned above, my company has done work for members of both of these organizations. But rest assured, my recommendation is never for sale.

Are there other quality agencies that don't belong to either of these organizations? Most definitely. Dues for NFCC and AICCCA aren't cheap, and I also personally know agencies that don't feel like paying them, yet still maintain high standards. So you shouldn't necessarily assume non-members are bad. But wherever you go, ask questions before you agree to anything. Questions like:

  • What is the percentage of clients they have on debt management programs? If the answer is nearly all, that's bad. If the answer is about half, that's good, because it shows they're trying to help their clients with other methods.
  • What fees will you have to pay?
  • What amount of budget counseling you're going to get. If you're not going to get any tools to help change the way you deal with debt, you could end up in the same place farther down the road.
  • Do their counselors have any training and certification?
  • Is the agency accredited by an independent organization?
  • What will their help mean to your credit history? The correct answer here is, "There's no way to tell for sure. Could even be negative. But consider the alternative." The wrong answer is, "No problem, buddy! Sign here!"

Check the BBB or other online sources for complaints. And talk to more than one agency. When you talk to several, it's easy to distinguish between the ones that come across like used-car salesmen vs. ones that sound like what you're really looking for: an objective counselor.

Bottom line? If you can't see your way out of a debt disaster, definitely get help. And don't be ashamed or embarrassed to do so. More than a million people every year file personal bankruptcy. Millions more do nothing to try to help themselves and end up with ruined credit and lots of sleepless nights. Going to a pro for help may not be your proudest moment, but there are definitely a lot worse things that could happen.

Next time we'll be covering another heavily-advertised debt solution: debt settlement.

Like this article? Pin it!

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Guest's picture

Credit counseling may help but I have generally found many questionable operates who care just for their bottom line (which they should) but not without any care for their client's credit history. Here is an alternative do yourself plan

Guest's picture

When I was in college I made the mistake of financing tuition by maxing out 4 credits. To this day I am living with that mistake. For two years I was making minimum payments and not seeing my balance decrease. I called the banks a few times to request a reduction on interest, but my request was never granted. I struggled month-to-month to pay the bill. I finally decided to sign up with a debt counceling service in order to seek help in reducing interest rates and working with my creditors. It was the best decision I made, I think. My credit score has not been affected. It has actually increased since starting the program. I do pay 10% commission fees every month, but it's little compared to the interest I could be paying.

The DMP helped while in college because I only had to worry about one check, rather than 4. Ther services are starting to become obsolete for me because I have started to make larger indivisual payments since graduating and starting my job.

Guest's picture

I have heard pretty terrible things about credit counsellors and like one of the previous posters, the bottom line rather than the clients welfare seems to be the overiding priority.

Guest's picture

You say that you are not convinced, I am never convinced. People always seem to be self serving. So the bottom line is always their angle. If you can get a friend to help you out that is the only way that that is going to work.

Guest's picture

"Better Off Deadbeat: Craig Cunningham Has a Simple Solution for Getting Bill Collectors Off His Back. He Sues Them.
By Kimberly Thorpe
published: January 21, 2010
While most Americans with unpaid bills dread the collector's call, Cunningham sees them as lucrative opportunities. Many collection and credit card companies, intentionally or not, violate little-known consumer rights laws, and Cunningham's favorite pastime is catching them doing so and then suing them. In fact, it's a profitable side job.
In the next four years, Cunningham accused debt collectors of misrepresenting the amount he owed (an FDCPA violation that entitles a consumer to collect up to $1,000). He sued over prerecorded and auto-dialed calls to his cellular phone (a TCPA violation worth up to $1,500 per call). He also filed complaints that agencies failed to investigate his claims that his credit file contains inaccurate information, a breach of the Fair Credit Reporting Act worth up to $1,000 per violation. All told, he filed 15 other lawsuits in federal court without the help of a lawyer, earning himself settlements totaling more than $20,000.

Read the rest at

Guest's picture

I am a credit counselor with a non-profit. We do not steer someone towards a DMP. We look at the overall budget and see if they can afford to possibly on their own negotiate with their creditors or a possible consolodation of debt via a loan If their busget does not support the DMP we refer them for bankruptcy which we do not make a dime off of. We also seldom charge a fee. We also counsel them on how they got to the point of over whelming debt and action steps to avoid this repeating itself in the future. If we depended on the grants from financial institutions we would be out of business tomorrow. We also get grants from Unted Way and local Agenices and Trust. We work hard at Finacial Education/ Fraud Prevention/Senior Financial Issues/Housing Isuues. A DMP is just a tiny corner of what we do. We are not here for the money, we are here because we care. Most folks could not live on what I make. Your article could easily scare someone away from a good counselor and cause them financial ruin and stress.

Guest's picture

I am new to this site and I wanted to post a comment about my experience with a debt settlement company. I just completed a program with Elite Financial and they saved me over 70% of my debts. Although I have seen my credit score suffer because of the program, that is nothing compared to the amount of stress that has been eased. I saved almost $37,000 over the last 2 years. I'd definitely recommend them to anyone that needs help. here is their website -

Guest's picture

I am new to this site and I wanted to post a comment about my experience with a debt settlement company. I just completed a program with Elite Financial and they saved me over 70% of my debts. Although I have seen my credit score suffer because of the program but that is nothing compared to the amount of stress that has been eased. I saved almost $37,000 over the last 2 years. I'd definitely recommend them to anyone that needs help. here is their website -

/** Fix admin settings safe to ignore showing on unauthenticated user **/