How to Find a Credit Counselor You Can Trust

Debt relief plans come in many forms. Here are four of the most common:

• A debt management plan. This is where a credit counselor negotiates with your creditors — seeking to lower the interest rates on your credit accounts — and sets up a plan where you make one monthly payment to your counselor’s agency and they disburse the money to your creditors until your debt is paid off.
• Debt consolidation. If you haven’t missed a payment, a credit counselor may suggest rolling all your debt into a single, low-interest loan or a balance transfer card with a low or zero-percent introductory rate.
• Debt settlement. Debt settlement companies typically offer to negotiate with your creditors to accept less than what you owe. The catch? Many companies charge hefty fees for their services, and missed payments and “settled” accounts appear on your credit report, dragging your credit score down for up to seven years. Nonprofit credit counselors usually do not negotiate debt settlements.
• Filing for bankruptcy. Bankruptcy can secure forgiveness for most unsecured debts (such as credit cards, medical bills and personal loans), but many financial advisers see it as a last resort since bankruptcies stay on your credit report for up to 10 years, doing long-term damage to your credit score.

Most nonprofit credit counselors focus on setting up debt management plans. These typically carry a setup fee of $50 to $75 and a monthly fee of $25 to $35 to oversee the plan. In comparison, debt settlement companies typically charge 15 to 25 percent of a client’s total debt for their services.

David Devaney, an 80-year-old retiree who lives in New Orleans, accumulated $45,000 in credit card debt over several years from expenses such as large health insurance premiums and bills (such as $200 copayments for eye drops for an eye disease), home repairs, moving expenses, and helping support his adult children and grandchildren.

In 2019, after failing to reach an agreement with his creditors on his own, Devaney — who was primarily living on Social Security income of less than $1,700 a month — reached out to AARP for help and was put in touch with a nonprofit credit counseling agency. They helped him negotiate a debt management plan that lowered the interest rates on his credit cards to around 5 percent. He paid $950 a month to the agency, which disbursed funds to his creditors over four years until his debts were paid off.

“It takes all the pressure off,” Devaney says of the plan his counselor set up. “You know exactly what you are paying.”

When should I seek credit counseling?

If you’re struggling to keep up with the minimum payments on your cards or you’re relying on credit to cover basic expenses, it may be time to connect with a nonprofit credit counselor.

Ideally, you want to do so before you miss a credit card payment. Failing to make a payment within 30 days can hurt your credit score, and payments that are more than 90 days late may be sent to a collection agency. 

How can I find a reputable credit counselor?

The debt relief industry is rife with scams perpetrated by criminals who prey on distressed consumers. But there are steps you can take to protect yourself.

“Avoid any organization that pressures you into a quick decision or guarantees results,” says James Hargrave, a certified financial planner in Kansas City, Kansas.

Also, watch out for firms that advise you to immediately stop making the minimum payments on your credit cards. “That is like dropping a nuclear bomb on your credit report,” McClary cautions.

Other signs that a debt relief outfit is dodgy: They advise you to dispute information on your credit report that you know is true or ask you to pay a large upfront fee for their services.

Many financial advisers recommend hiring a nonprofit credit counselor instead. “For-profit credit counseling companies often have stronger incentives to push specific debt solutions or consolidation products,” says Hargrave.

One place to start searching for nonprofit help is the National Foundation for Credit Counseling (NFCC). This trade association’s members must pass a certification exam, meet certain quality standards and take a minimum of 20 hours of professional development every two years. The Financial Counseling Association of America (FCAA) is another widely recognized network of nonprofit counselors. You can also check the U.S. Department of Justice’s list of approved credit counseling agencies.

Before choosing a credit counselor, check with your state attorney general’s office or consumer protection agency to see if the counselor has had any complaints filed against them.

Joni Kattau, 51, has encountered a fair share of unscrupulous debt relief providers. After she moved from Seattle to Arizona in 2017, taking a lower-paying job to be closer to family, she began charging gas, groceries and other living expenses to her credit cards. When she could no longer afford the minimum payments, she spoke to several debt relief companies. 

Some encouraged her to stop paying her creditors, promising to settle the debts once they were sent to collections. That approach would have destroyed her credit score, she says.

Instead, she went with Money Management International, which helped her negotiate a debt management plan with her creditors. The agreement lowered the double-digit interest rates on her credit cards to between 3 and 9 percent, enabling her to pay off the roughly $50,000 she owed in four years.

During that time, Kattau, now an independent Medicare broker, educated herself on budgeting and reined in her spending. “I repaid every dime I owed to my credit card companies,” she says. “I just didn’t have to pay 24 percent, 26 percent or 29 percent interest on my debt. That is what made the huge difference.”