Federal Trade Commission | ftc.gov

Choosing a Credit 

Counselor

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Living paycheck to paycheck? Worried about debt collectors? Can’t seem to develop a workable budget, 

let alone save money for retirement? If this sounds 

familiar, you may be considering the services of a credit 

counselor.

Most reputable credit counselors are non-profit and 

offer services at local offices, online, or on the phone. 

If possible, find an organization that offers in-person 

counseling. Many universities, military bases, credit 

unions, housing authorities, and branches of the U.S. 

Cooperative Extension Service operate non-profit credit 

counseling programs. Your financial institution, local 

consumer protection agency, and friends and family also 

may be good sources of information and referrals.

But be aware that “non-profit” status doesn’t guarantee 

that services are free, affordable, or even legitimate. In 

fact, some credit counseling organizations charge high 

fees, which they made hide; others might urge their clients 

to make “voluntary” contributions that can cause more 

debt.

Choosing a Credit Counseling 

Organization

Reputable credit counseling organizations can advise you 

on managing your money and debts, help you develop 

a budget, and offer free educational materials and 

workshops. Their counselors are certified and trained 

in consumer credit, money and debt management, and 

budgeting. They discuss your entire financial situation 

with you, and help you develop a personalized plan to 

deal with your money problems. An initial counseling 
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session typically lasts an hour, with an offer of follow-up 

sessions.

A reputable credit counseling agency should send you 

free information about itself and the services it provides 

without requiring you to provide any details about your 

situation. If a firm doesn’t do that, consider it a red flag 

and go elsewhere for help. 

Once you’ve got a list of counseling agencies you 

might do business with, check each one out with your 

state Attorney General (www.naag.org) and local 

consumer protection agency (www.usa.gov/directory/

stateconsumer/index.shtml). They can tell you if 

consumers have filed complaints about any one of them. 

(If there are no complaints about them, don’t consider it 

a guarantee that they’re legitimate.) The United States 

Trustee Program also keeps a list of credit counseling 

agencies approved to provide pre-bankruptcy counseling 

(www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.

htm). After you’ve done your background investigation, 

you will want to interview the final “candidates.”

Questions to Ask

Here are some questions to ask to help you find the best 

counselor for you.

● What services do you offer? Look for an 

organization that offers a range of services, 

including budget counseling, and savings and debt 

management classes. Avoid organizations that push 

a debt management plan (DMP) as your only option 

before they spend a significant amount of time 

analyzing your financial situation. 
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● Do you offer information? Are educational 

materials available for free? Avoid organizations 

that charge for information. 

● In addition to helping me solve my immediate 

problem, will you help me develop a plan for 

avoiding problems in the future? 

● What are your fees? Are there set-up and/or 

monthly fees? Get a specific price quote in writing. 

● What if I can’t afford to pay your fees or make 

contributions? If an organization won’t help you 

because you can’t afford to pay, look elsewhere for 

help. 

● Will I have a formal written agreement or 

contract with you? Don’t sign anything without 

reading it first. Make sure all verbal promises are in 

writing. 

● Are you licensed to offer your services in my 

state? 

● What are the qualifications of your counselors? 

Are they accredited or certified by an outside 

organization? If so, by whom? If not, how are 

they trained? Try to use an organization whose 

counselors are trained by a non-affiliated party. 

● What assurance do I have that information about 

me (including my address, phone number, and 

financial information) will be kept confidential 

and secure? 
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● How are your employees paid? Are they paid 

more if I sign up for certain services, if I pay a fee, 

or if I make a contribution to your organization? 

If the answer is yes, consider it a red flag and go 

elsewhere for help. 

Debt Management Plans

If your financial problems stem from too much debt or 

your inability to repay your debts, a credit counseling 

agency may recommend that you enroll in a debt 

management plan (DMP). A DMP alone is not credit 

counseling, and DMPs are not for everyone. Don’t sign 

up for one of these plans unless and until a certified credit 

counselor has spent time thoroughly reviewing your 

financial situation, and has offered you customized advice 

on managing your money. Even if a DMP is appropriate 

for you, a reputable credit counseling organization 

still can help you create a budget and teach you money 

management skills.

How a DMP Works

In a DMP, you deposit money each month with the credit 

counseling organization. It uses your deposits to pay your 

unsecured debts, like your credit card bills, student loans, 

and medical bills, according to a payment schedule the 

counselor develops with you and your creditors. Your 

creditors may agree to lower your interest rates or waive 

certain fees. But it’s a good idea to check with all your 

creditors to be sure they offer the concessions that a credit 

counseling organization describes to you. A successful 

DMP requires you to make regular, timely payments; it 

could take 48 months or more to complete your DMP. 

Ask the credit counselor to estimate how long it will take 
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for you to complete the plan. You may have to agree not 

to apply for — or use — any additional credit while you’re 

participating in the plan.

Is a DMP Right For You?

In addition to the questions already listed, here are some 

other important ones to ask if you’re considering enrolling 

in a DMP.

● Is a DMP the only option you can give me? Will 

you give me on-going budgeting advice, regardless 

of whether I enroll in a DMP? If an organization 

offers only DMPs, find another credit counseling 

organization that also will help you create a budget 

and teach you money management skills. 

● How does your DMP work? How will you make 

sure that all my creditors are paid by the applicable 

due dates and in the correct billing cycle? If a DMP 

is appropriate, sign up for one that allows all your 

creditors to be paid before your payment due dates 

and within the correct billing cycle. 

● How is the amount of my payment determined? 

What if the amount is more than I can afford? Don’t 

sign up for a DMP if you can’t afford the monthly 

payment. 

● How often can I get status reports on my 

accounts? Can I get access to my accounts online 

or by phone? Make sure that the organization you 

sign up with is willing to provide regular, detailed 

statements about your account. 
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● Can you get my creditors to lower or eliminate 

interest and finance charges, or waive late fees? 

If yes, contact your creditors to verify this, and ask 

them how long you have to be on the plan before the 

benefits kick in. 

● What debts aren’t included in the DMP? This is 

important because you’ll have to pay those bills on 

your own. 

● Do I have to make any payments to my creditors 

before they will accept the proposed payment 

plan? Some creditors require a payment to the 

credit counselor before accepting you into a DMP. 

If a credit counselor tells you this is so, call your 

creditors to verify this information before you send 

money to the credit counseling agency. 

● How will enrolling in a DMP affect my credit? 

Beware of any organization that tells you it can 

remove accurate negative information from your 

credit report. Legally, it can’t be done. Accurate 

negative information may stay on your credit report 

for up to seven years. 

● Can you get my creditors to “re-age” my 

accounts — that is, to make my accounts 

current? If so, how many payments will I have to 

make before my creditors will do so? Even if your 

accounts are “re-aged,” negative information from 

past delinquencies or late payments will remain on 

your credit report. 
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How to Make a DMP Work for You

The following steps will help you benefit from a DMP, 

and avoid falling further into debt.

● Continue to pay your bills until your creditors have 

approved the plan. If you stop making payments 

before your creditors have accepted you into a plan, 

you’ll face late fees, penalties, and negative entries 

on your credit report. 

● Contact your creditors and confirm that they have 

accepted the proposed plan before you send any 

payments to the credit counseling organization for 

your DMP. 

● Make sure the organization’s payment schedule 

allows your debts to be paid before they are due 

each month. Paying on time will help you avoid late 

fees and penalties. Call each of your creditors on 

the first of every month to make sure the agency has 

paid them on time. 

● Review monthly statements from your creditors to 

make sure they got your payments. 

● If your DMP depends on your creditors agreeing 

to lower or eliminate interest and finance charges, 

or waive late fees, make sure these concessions are 

reflected on your statements. 
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The Telemarketing Sales Rule

The Telemarketing Sales Rule (TSR), enforced by the 

Federal Trade Commission, requires companies that sell 

debt relief services to explain their fees and tell you about 

any conditions on their services before you sign up; it also 

prohibits companies that sell debt relief services by phone 

from charging a fee before they settle or reduce your debt. 

For credit counseling that promises to get you into a DMP, 

that means the company cannot collect a fee until you 

have entered the DMP and made at least one payment to 

your creditors using the DMP.

Other Debt Relief Options

Working with a credit counseling organization is just 

one option for dealing with your debt. You also could: 

negotiate directly with your credit card company, work 

with a debt settlement company, or consider bankruptcy.

Talk with your credit card company, even if you have 

been turned down before. Rather than pay a company to 

talk to your creditor on your behalf, remember that you 

can do it yourself for free. You can find the telephone 

number on your card or your statement. Be persistent and 

polite. Keep good records of your debts, so that when 

you reach the credit card company, you can explain your 

situation. Your goal is to work out a modified payment 

plan that reduces your payments to a level you can 

manage.
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If you don’t pay on your debt for 180 days, your creditor 

will write your debt off as a loss; your credit score will 

take a big hit, and you still will owe the debt. Creditors 

often are willing to negotiate with you even after they 

write your debt off as a loss. For information, read How 

Credit Scores Affect the Price of Credit and Insurance at 

www.consumer.ftc.gov.

Bankruptcy. Declaring bankruptcy has serious 

consequences, including lowering your credit score, but 

credit counselors and other experts say that in some cases, 

it may make the most sense. Filing for bankruptcy under 

Chapter 13 allows people with a steady income to keep 

property, like a mortgaged house or a car, that they might 

otherwise lose through the Chapter 7 bankruptcy process. 

In Chapter 13, the court approves a repayment plan that 

allows you to pay off your debts over a three to five year 

period, without surrendering any property. After you 

have made all the payments under the plan, your debts are 

discharged. As part of the Chapter 13 process, you will 

have to pay a lawyer, and you must get credit counseling 

from a government-approved organization within six 

months before you file for any bankruptcy relief. For 

more information, read Filing for Bankruptcy: What to 

Know at www.consumer.ftc.gov. 

You can find a state-by-state list of governmentapproved organizations at the U.S. Trustee Program 

(www.justice.gov/ust), the organization within the U.S. 

Department of Justice that supervises bankruptcy cases 

and trustees. Also, before you file a Chapter 7 bankruptcy 

case, you must satisfy a “means test.” This test requires 

you to confirm that your income does not exceed a certain 

amount. The amount varies by state and is publicized by 

the U.S. Trustee Program.
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Filing fees are several hundred dollars. Attorney fees are 

extra and vary. For more information visit the United 

States Courts (www.uscourts.gov/FederalCourts/

Bankruptcy.aspx), and read Coping with Debt at 

www.consumer.ftc.gov.

Debt settlement. Debt settlement programs typically 

are offered by for-profit companies, and involve them 

negotiating with your creditors to allow you to pay a 

“settlement” to resolve your debt — a lump sum that 

is less than the full amount that you owe. To make that 

lump sum payment, the program asks that you set aside 

a specific amount of money every month in savings. 

Debt settlement companies usually ask that you transfer 

this amount every month into an escrow-like account 

to accumulate enough savings to pay off any settlement 

that is eventually reached. Further, these programs often 

encourage or instruct their clients to stop making any 

monthly payments to their creditors.

Although a debt settlement company may be able to settle 

one or more of your debts, these programs can be very 

risky and have serious negative financial consequences for 

consumers. Additionally, some debt settlement companies 

deceive consumers by making promises they do not keep 

and engaging in other illegal conduct (like charging fees 

before obtaining any settlements, in violation of the TSR). 

For information, read Coping with Debt and Settling 

Credit Card Debts at www.consumer.ftc.gov.
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For More Information

The FTC works to prevent fraudulent, deceptive and 

unfair business practices in the marketplace and to provide 

information to help consumers spot, stop and avoid them. 

To file a complaint or get free information on consumer 

issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. 

Watch a video, How to File a Complaint, at ftc.gov/video

to learn more. The FTC enters consumer complaints 

into the Consumer Sentinel Network, a secure online 

database and investigative tool used by hundreds of civil 

and criminal law enforcement agencies in the U.S. and 

abroad. 
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Federal Trade Commission

ftc.gov

November 2012