Bad Credit Helper: Do You Need Credit Counseling?


If you’re drowning in debt, then you probably need a life preserver. That’s where credit counseling might help save your life—or at least your pocketbook.

Use whatever metaphor you want for debt: maybe you’re drowning it, maybe it’s crushing, maybe it’s like an incredibly persistent ghost haunting you wherever you go.

However you describe it, the fact remains that massive debt is a huge problem. It drives down your credit score, drives up your interest rates, and generally makes it impossible to get ahead.

There are many solutions out there for dealing with debt and fixing your bad credit, and credit counseling is one of the big ones. That’s why we reached out to three top industry experts to explain the basics.

Who knows? This could be the thing that takes your debt from [Insert Metaphor Here] to nothing more than a distant memory.

What is credit counseling?

Credit counseling is a financial service designed to educate consumers to pay off their debts and how to avoid debt in the future,” Katie Ross, Education and Development Manager, American Consumer Credit Counseling, or ACCC.

“Credit counseling may involve analysis of a consumer’s financial situation, evaluation of debt reduction strategies for paying off or managing debt, and education about money management.”

Gary Herman, President of Consolidated Credit Counseling Services, says, “It’s an invaluable service for anyone who is struggling to pay off debt on their own. Even when someone faces challenges, such as a low credit score or a limited budget, credit counseling can often help them achieve freedom from debt.”

How does the process work?

According to Herman, “the counseling process typically starts with a free debt and budget evaluation. The credit counselor gathers information from the consumer about their current debt, income and expenses. They also check the person’s credit to see where they stand.”

“Based on those results, the counselor can evaluate which debt relief will work best in that consumer’s unique financial situation. If it turns out that a debt management program is the best option, the credit counselor can help the client enroll.”

Mike Sullivan, a personal finance consultant with national nonprofit credit counseling and debt management agency Take Charge America, says that “Typically, a consumer contacts a credit counseling agency due to personal concern about debt, or due to a creditor referring that consumer because they fit the profile of being financially distressed.”

“Of course, there are occasional calls from consumers who just want help with budgeting or advice on a topic like identity theft or reverse mortgages, but most consumers do not ask for help until they are in trouble.”

What is a Debt Management Plan and how does it work?

Hopefully, your initial consulting session with a credit counselor will end with your being able to pay your debt on their own.

But if not, there’s still another solution possible:

A DMP, or Debt Management Plan, is a service offered by most credit counseling agencies, says Sullivan. “A consumer having difficulty managing debt may be offered the opportunity to have the credit counseling agency make payments on some or all of their accounts.

“The consumer would send money to the agency, and the agency would negotiate with creditors to lower interest rates and/or re-age accounts (have them brought out of late or default status to save on fees) and make payments from the consumer’s funds.”

“There is typically a charge for this service, although the concessions gained and regular payments should still lead to savings for the consumer,” he says.

Ross lays out the steps through which a DMP is established:

“In an initial free credit counseling session, you collect all of your outstanding credit card statements and monthly bills, and we work with you to create a manageable budget.”

“Next we assess your credit card debts, and other unsecured debts, and create a proposal to send to your creditors. Creditors have been known to lower your monthly interest rates, accept a lower monthly payment, or re-age your accounts so they are current, instead of in arrears. The goal of a debt management plan is to get you out of debt in the shortest period of time, without going through bankruptcy or debt settlement, both of which are detrimental to your credit score.”

“Once a proposal is accepted, we set up an account for you, where you transfer funds directly to us via EFT, electronic funds transfer from your checking account. Each month, we make sure your bills are paid on time and keep you apprised of your status with a monthly statement of your account.”

Herman states that the lower interest rates negotiated through a DMP mean “that a person can get out of debt faster, even though their total monthly payments are typically reduced by 30 to 50 percent.”

How much does credit counseling cost?

The answer to this question is going to vary depending on your situation and the credit counselor with whom you’re working.

But overall, especially if you’re working a not-for-profit company, the cost of credit counseling should always be low. Sometimes it’s even free.

“The cost of credit counseling varies by agency,” says Ross. Nonprofit credit counseling firms will tend to cost less than for-profit agencies, and some may even offer free credit counseling services.”

“ACCC charges a one-time enrollment fee of $39.00 and $5 per account with a maximum monthly fee of $35.”

“The initial credit counseling consultation is free,” says Herman. There are setup and monthly administration fees for enrolling in a debt management program. The cost of these fees varies by state and is regulated by state law, but it should never”

“There are exceptions that can be made to the fee structure for financial hardship, as well as special cases such as military deployment.”

When should I seek advice from a credit counselor?

If you’re thinking about contacting a credit counselor, then, to be honest, you probably should. If your debt burden is at the point where you’re considering outside help, then your situation is already not too great.

For Ross, the need for credit counseling includes such signs of financial trouble as:

    • Paying your bills late
    • Missing payments
    • Paying less than the minimum
    • If you have been turned down for credit or for a loan

Herman says that “Consumers should also contact a credit counselor if they’re struggling to find an alternative debt solution on their own. If interest rate negotiation with your creditors fail or if a debt consolidation loan is not working, it’s time to contact a credit counselor.”

On this question, Sullivan has a slightly different, and very wise, answer:

“It may be a good idea to contact a credit counseling agency upon receiving your first credit card. A counselor will assist you with creating a budget a determining exactly how much you can afford to charge based on your available income,” he says.

“For most consumers, however, the time to call is the first time you have difficulty making the minimum payment due on any account. Most consumers wait until collectors begin to call but that is often too late.”

Do you have an experience with credit counseling that you’d like to share? Well guess what?! We’d love to hear from you! You can find us on Twitter at @OppLoans.

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Gary Herman, Consolidated Credit Counseling Services Inc. (@ConsolidatedUS), is a consumer credit specialist and a AFCPE Certified Credit Counselor. He has been a part of Consolidated Credit for over 20 years and his expertise in establishing operations and marketing policies, hiring, and training financial counselors, has been a crucial advantage in Consolidated Credit’s success. As an expert who examines consumer credit trends, causes and effects of financial over-extension, Mr. Herman has been able to predict the needs of financially burdened consumers and provide Consolidated Credit’s certified counselors with the tools and educational materials required to keep ahead of the public’s needs.
Katie Ross, joined the American Consumer Credit Counseling, or ACCC, management team in 2002 and is currently responsible for organizing and implementing high performance development initiatives designed to increase consumer financial awareness. Ms. Ross’s main focus is to conceptualize the creative strategic programming for ACCC’s client base and national base to ensure a maximum level of educational programs that support and cultivate ACCC’s organization.
Mike Sullivan is a personal finance consultant with Take Charge America (@TCAsolutions), a national nonprofit credit counseling and debt management agency. He has more than 25 years of experience educating consumers about a wide range of budgeting, credit, debt and saving issues, and was instrumental in building Take Charge America’s financial education department and community initiatives. More at


The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.