If your credit card, medical debt, or personal loan balances keep growing, you’re not alone. According to Experian data, Americans owe roughly $18.2 trillion in consumer debt, including $1.18 trillion in credit card balances.
If you’re struggling to stay afloat financially, debt counseling may be a practical solution. Also known as credit counseling, it provides guidance and structure for people in debt. Here’s what you should know to determine if it’s right for you.
What Debt Counseling Means
Per the Consumer Financial Protection Bureau (CFPB), credit counseling agencies are organizations that teach people how to manage debt, create budgets, and review their credit reports. In other words, they provide tools and strategies to help you pay back what you owe.
Many agencies also set up debt management plans (DMPs) for qualifying clients. These are formal arrangements in which you make a payment to the agency that they then disburse to your creditors, often while negotiating more favorable rates or lowered fees for you.
What to Expect From a Counseling Session
A typical debt counseling session lasts about an hour and can happen online, over the phone, or in person. You’ll go over your income, spending, and outstanding debts. It might feel uncomfortable at first, but many people find relief once their finances are organized.
Your counselor will then help you build a budget that covers your essentials while leaving room for your monthly debt payments. The goal is to make your plan realistic, not overwhelming. For the right candidates, counselors may also suggest DMPs.
How a Debt Management Plan Works
A DMP simplifies the repayment process and creates a clear schedule. First, the counselor contacts your creditors and negotiates for reduced interest rates and fees. Once they come to an arrangement, you’ll make one payment to the agency each month, which it’ll send out to your creditors according to the newly defined terms.
According to the Federal Trade Commission (FTC), most DMPs last three to four years. They typically include unsecured debt, like credit cards, personal loans, and medical bills. Mortgages, car loans, and most student loans need other solutions.
Counseling agencies must tell you about any setup or monthly fees before you enroll. If you can’t afford them, legitimate organizations should offer free or discounted services based on your annual income levels.
Benefits of Debt Counseling
Debt counseling services can provide many benefits in the face of financial stress. Here’s what you can typically expect.
1. A Simple Plan
Debt counseling can make your monthly financial management much simpler. Instead of juggling several bills, you get to make one payment that’s more likely to fit your budget. Not only can that help you stay consistent, but you may also pay less in interest and fees.
2. Less Stress and More Confidence
The Financial Health Network reports that about two-thirds of adults say money causes major stress, which can affect your sleep, health, and relationships. Debt counseling can be an excellent way to regain a sense of control.
3. Better Habits and Long-Term Progress
Research from the Global Financial Literacy Excellence Center (GFLEC) shows that people who receive credit debt counseling often improve payment habits and reduce high-interest credit use. If you sign up for their help, you likely have a better chance of achieving financial stability than you would on your own.
Is Debt Counseling Right for You?
Debt counseling may not be the best option for everyone, but here are some indications that it might be right for you:
- You have multiple credit cards, personal loans, or medical bills
- You’re struggling to keep up with the monthly payments
- You want professional help to simplify your financial management
- Your finances aren’t so unstable that you need to take more drastic steps like bankruptcy
When choosing a counseling agency, look for one approved by the U.S. Department of Justice or listed by the NFCC, FCAA, or U.S. Trustee Program. Reputable agencies give free information, explain fees clearly, and never pressure you into a plan.
Taking Back Control of Your Finances
Debt counseling can help you create a manageable plan to regain financial stability without resorting to bankruptcy. If you have multiple debts and are struggling to keep up with your monthly payments, work with a reputable credit counseling agency to improve your chances of long-term success.
