Whether you're trying to rebuild your credit score or you want to tackle debt that has been building up for years, credit counseling provides objective advice and resources to help you get your finances back on track.
Credit counseling organizations offer a range of services, classes and programs around topics like bankruptcy, credit card debt, mortgages and reverse mortgages, foreclosure prevention, student loans and small business loans all at low or no cost.
Below, CNBC Select explains how credit counseling works and how to find a credit counselor to help you repair your finances.
While there are a lot of programs out there, you want to find a nonprofit organization staffed by credentialed financial experts who specialize in debt payoff and debt management. You can start by checking out the National Federation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA). Both provide directories of their accredited member locations.
You can expect your credit counseling session to last about an hour, and they can take place online, in person or over the phone. Typically, you meet with a counselor one-on-one, but they may refer you to additional services, including free or low-cost classes on specific topics that are led by their counseling staff.
When you meet with the credit counselor, you and the counselor will take an in-depth look at your finances, starting with the big picture (reviewing expenses like rent/mortgage and car payments, as well as looking at total assets and total debts), then honing in on the specifics (like the APRs and late fees on each of your credit cards). For this process, you may need to authorize a credit check so that the counselor can see your credit report. Or if you have an up-to-date version of your credit report, you can take it with you to the appointment.
After your conversation, the credit counselor will make recommendations on steps you can take to improve your financial situation. They might recommend you enroll in a debt management program, where the credit counseling organization would negotiate a payment plan with your issuers on your behalf.
You may need credit counseling if you feel overwhelmed or anxious about your being able to pay off your debt. If you are having trouble meeting your financial obligations, you may benefit from counseling. Credit creep is a common problem, and it doesn't take long for your debt to feel out of hand. You also may benefit from credit counseling if you plan on starting a business or taking on a mortgage, or if you've just navigated an unexpected life event that impacted your finances, such as a job loss.
Typically, people turn to a credit counselor when they need to know how to pay off their debt faster, consolidate their debt into one monthly payment, eliminate or recover late fees, negotiate lower interest rates and generally improve their money habits so they can work toward a better financial future.
The most reputable credit counseling organizations are nonprofits, and you can take advantage of their programs free of charge or at an affordable fixed rate. You won't pay high fees to meet with one, like you might with a financial advisor.
To get started, search for an accredited credit counseling organization in your area on the FCAA website or by phone at (800) 450-1794.
You can also search on the NFCC website (search by zip code at the bottom), or call at (800) 388-2227.
Here are some ways to know you've found a safe and reputable credit counseling organization:
Once you've gathered a list of credible organizations you want to reach out to, make sure they are legitimate by checking them out with your state attorney general and state consumer protection agency. You can also read your state's financial regulation laws, including consumer protection acts, to know your rights and learn more about the fee limits in your state. This information is usually found on the website for your state's financial commissioner or office of financial services.
Credit counselors can help you understand your financial options when debt becomes overwhelming, and in some cases they can even help prevent foreclosure or bankruptcy. Credit counseling is also helpful for major life transitions that require borrowing, such as home-buying or opening a business, or if you've recently experienced a financial emergency and you can no longer pay off your debt.
Most of the time, debt counselors and credit counselors are free and offer a wide array of resources including debt management programs.
Once you get your debt under control, credit counselors can put you on track to pay off your debt, build your savings and begin to make a plan for your future.