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Credit counseling and how it can help you get out of debt

Credit counseling
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Credit counseling is offered to people who perhaps don't quite meet the requirements for debt consolidation or settlement. Depending on how much you owe, you may be referred to a credit counselor by one of the best debt consolidation companies. Generally, companies refer people who have under $7,500 in debt. For anything more severe, you should consider one of the best debt settlement companies instead.

Credit counselors can help you establish a budget, and also offer debt management plans that help people pay off debt, with some being able to stop interest charges and abolish late payment fees.

What do credit counselors do?

Credit counselors help people by establishing exactly what their financial situation is and helping them to manage it going forward. During your first call with a credit counselor, you will be asked to give details of your expenses, your income, any savings you have, and your debts. If you're unsure, our guide to types of debt you can consolidate may help.

The counselor will then help you devise a budget that will allow you to get back in control of your finances. A counselor will also give you information on how to find your credit reports, and how to understand the information they include. 

A counselor will also be able to give you advice on whether or not certain financial-management products could be appropriate for you, including debt settlement, bankruptcy, or a debt management plan that is provided by the counseling agency. 

If you have a debt management plan through a credit counseling agency you will make payments directly to the agency, which will then take care of sending payments to your creditors on your behalf. Counseling services often get some concessions made by creditors, and these can include reduced interest rates and reduction or elimination of late fees.

However, you do need to take into consideration that there are some fees associated with credit counseling debt management plans. There is usually a setup fee and a monthly fee. The setup fee is paid based on the total amount of debt you are asking for help with, they range from 15% to 25% of the settled amount. Monthly fees run from around $15 to $30 depending on each company.

Top debt settlement provider

National Debt Relief is our top pick of debt settlement providers. As well as providing debt settlement, their debt councilors will also help you understand your debt management options.

Debt management vs debt consolidation

Debt management plans often take longer to complete than other options including debt consolidation. Plans can last up to five years, but they may affect your credit less than other options. There are varying opinions on how debt management plans affect credit, states that a plan in itself does not affect your score, but it is noted on your report, which could make you less attractive to lend money to in the future. If you still need to get extra cash in the meantime, check our guide on how to borrow money effectively.

You will also close some accounts as part of the plan, which can also affect your credit negatively for a little while. On the whole, it seems that debt management is a safer option in terms of preserving credit compared to other more risky options including debt settlement or bankruptcy. 

If you think credit counseling could be the right option for you, you can find a list of accredited organizations by getting in touch with the National Foundation for Credit Counseling. And if you're unsure, we have a feature on 11 signs you have a debt problem to help you make the right choice. 

National Debt Relief

National Debt Relief is one of the best options for debt settlement. Customer service and debt negotiation are provided in-house, and its average rate of debt reduction is the highest we've found.

Gina Clarke has worked in journalism for over a decade for titles such as The Daily Mail, The Sun and Forbes. She began her career in BBC radio and now specialises in subjects such as financial technology and women’s health. She has written for the Top Ten Reviews brand on a number of different and varied topics.