Am I A Good Candidate For Credit Counseling?

by Gary Foreman

If you’re having debt problems, you might be wondering ‘Am I a good candidate for credit counseling?’. These guidelines will help you find out.

You’re tired of writing a check to Mastercard or Visa or Discover or whoever each month. And even though you’re watching your spending, it seems like you’ll never get this credit card balance paid off.

You’ve heard and seen commercials that claim they can cut thousands off your payments. But you don’t know much about it and wonder if it’s just hype or whether they really can help.

The ads are for credit counseling agencies. Let me share some info to help you decide whether they can help you.

Their program isn’t for everyone. But, given certain circumstances, they can provide an excellent tool to help you free yourself from your credit card debts.

You are a good candidate for credit counseling if:

• the combined balance on your credit cards of over $10,000.
• you have not fallen behind in your payments or have only been late once or twice.
• you owe more on your cards now than you did 6 months ago.
• you don’t seem to be able to pay more than the minimum each month.
• you haven’t been able to reduce the amount you owe.

You need to talk with a credit counselor about bankruptcy or debt settlement help if:

• you haven’t paid anything on your credit cards for months.
• you’re getting threatening phone calls from debt collectors.
• under normal circumstances it could take you more than 5 years to pay off your debts.
• your income is too little to cover your expenses and debts with no expectation of an increase in income.

You are NOT a good candidate for credit counseling if:

• the combined balance on your credit cards is less than $7,000.
• the combined balance is about the same as it was 6 months ago
•  you not only are able to keep up with your monthly minimums, but you are already reducing the amount you owe.
• most of the problem debt is not on credit cards.

Credit Counseling FAQs

There are a couple of questions that most people ask before they make a decision about contacting a credit counseling agency.

Will credit counseling lower your credit score?

That depends on what you have the credit counselor do for you and how the lender reports it.

First, what the credit counselor does for you. On your initial contact with them they’ll ask information about your situation. How much do you owe? What cards do you have? Are you current? etc. They may help you set up a budget. None of that is reported so it can not affect your credit score.

If the credit counselor thinks that you could benefit they’ll suggest a Debt Management Plan (DMP). In a DMP the counseling agency negotiates lower interest rates and/or reduced payment amounts for you. Usually both.

Whether your credit score is affected will be determined by what the lender(s) do. They may report that the account is ‘current’ and ‘being paid in full’. Which is true. If that’s reported your score could actually improve as you reduce the amount you owe and continue to make on-time payments.

However, the lender may report that you are in DMP and have elected to close your account. (Which is also true. Typically closing your accounts so that you can’t charge more is part of the agreement.) The fact that you closed more than one account and reduced the amount of credit available to you could lower your score.

You want to keep that in perspective. If you’re a good candidate for DMP the amount you owe is increasing and you’re probably about to fall behind in your bills. Both of those things will lower your credit score. In many cases dramatically. So the DMP drop in credit score could be much less than you’d lose without it. Especially as you successfully work the program. Each month you stay current and reduce the amount you owe improves your score a little.

How much does credit counseling cost and how long will it take?

Two other common questions are how much does it cost and how long does it take. Agencies typically charge a one-time start-up fee and then a monthly fee based on the number of credit cards involved. Fees will be much less than you’ll save with DMP. The agency will explain their fee structure in your initial contact with them.

As to how long it takes, generally between two and five years. I know, that seems like forever. But it probably took you that long to build up the debt. We’d all like the credit card balances to just go away. But the only way that happens is bankruptcy and that has it’s own costs.

Should you contact a credit counseling agency?

You have enough information to decide whether to contact an agency or not. If you’re a good candidate based on the criteria by all means do so. You’ll be avoiding a lot of financial pain.

On the other hand, if you don’t fit the criteria, visit our page on getting out of credit card debt and use those tools.

If you’re not sure whether you are a good candidate or not, please contact them anyway. It’s free and you’re bound to learn something about your finances. All you can lose is a few minutes of your time. The U.S. Justice Department publishes a list of approved credit counseling agencies that you can refer to when searching for a trustworthy agency.

Take Action Now:

• If you think you are a good candidate for credit counseling help, contact an agency now. Don’t put your finances and credit score in further jeopardy.
• Or, if you think bankruptcy might be a better option for you, find out if you might be a good candidate for bankruptcy.
• Understand what the future may have in store for you if you decide not to do anything about your debt.

If you’d like help outside of credit counseling

If you’d like to consider other debt payoff options before seeking credit counseling, or if it does not look like you will qualify for credit counseling, take a look at the TDS ebook How to Conquer Debt No Matter How Much You Have.

We will walk you through the creation of your own personalized debt payoff plan tailored to your debt burden, budget and lifestyle. You can read more about it here.

Reviewed August 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.