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How does consumer credit counseling work?

Consumer credit counseling programs consolidate high-interest credit cards into one low monthly payment. This type of debt consolidation option helps a person resolve credit card debt faster, without hurting credit scores and having to fall delinquent on payments. Whether a person has bad credit or a high credit score, anyone can qualify for credit counseling. Credit counseling is the only credit card debt relief program that can help a person improve their credit score. How’s this possible? because late payments can get re-aged to show current with consumer credit counseling!

Clients make a single monthly payment each month to the credit counseling company. The credit counseling company then disburses payments to each of the credit card companies but at the lower interest rate. Consequently, clients can become debt-free in 4-5 years, versus, 10+ years in some cases.

Here’s the thing, every debt relief option has its benefits and downsides. If you want to save the most money, debt settlement or validation could be your least expensive route. If you want to preserve your high credit score and would like to just cut out some of the interest you are paying on credit cards, consumer credit counseling could be your best option.

Here’s an infographic that makes it easy to compare the pros and cons of each debt relief program:

(and towards the bottom of this page you can try the debt calculator tool to get a side by side comparison of the true cost of consumer credit counseling versus alternative debt relief options)

consumer credit counseling

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Qualification Guidelines for a Non-Profit Consumer Credit Counseling Program

  • To qualify for consumer credit counseling services a person must have over $5,000 in credit card debt.
  • A person can be behind on monthly payments by up to 2-3 months.
  • A person’s monthly payment on a consumer credit counseling program remains around the same as when paying credit card minimum payments. Therefore, a person must be able to comfortably afford minimum payments or more.
  • Credit card debt is the only type of debt that qualifies for consumer credit counseling. If a person needs help paying off finance company loans, collection accounts, medical bills, and a variety of unsecured debt, debt negotiation services can help.

What is the purpose of a Consumer Credit Counseling Service?

Consumer credit counseling programs are designed for two reasons:

  1. To qualify for chapter 7 bankruptcy a person must get a consumer credit counseling bankruptcy certificate through a licensed credit counseling agency. This certificate illustrates that a person has attempted to consolidate their debt prior to deciding on bankruptcy. A bankruptcy judge will want to see a person avoid bankruptcy if possible. A bankruptcy judge will also require that person to obtain financial education through a licensed credit counseling company before approving them for a chapter 7 bankruptcy. Click here to learn more about bankruptcy:
  2. The other reason that a person would want to do consumer credit counseling is to reduce credit card interest rates and consolidate payments into one. However, debt settlement can offer a person an even lower monthly payment and help them become debt-free faster than what consumer credit counseling can offer.

How Consumer Credit Counseling Affects Credit

After a person joins a consumer credit counseling program a notation gets reported on their credit report. The notation illustrates that they joined a consumer credit counseling program. This notation can be considered to be a negative mark by future lenders because it shows that a person could not manage their credit card payments on their own.

Let’s be clear here: consumer credit counseling programs usually won’t lower a person’s credit score but could affect a person’s creditworthiness and ability to borrow in the future.


Compare Consumer Credit Counseling, Debt Consolidation, Validation & Consolidation

How much does consumer credit counseling cost?

Non-profit companies must keep their monthly fees under $100 per month. Therefore, the fees are low on a consumer credit counseling program, compared to debt settlement and consolidation plans. But, consumer credit counseling is more expensive than debt settlement because all of the debt gets paid back, plus interest, plus fees! With debt settlement services a person saves about 30% on their balances (including all fees!).

Compare the cost of debt relief programs by using this debt calculator here:

If you want to stay current on your monthly payments without using consumer credit counseling services, try using this debt snowball method here:


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