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is credit counseling free

As of late 2017, the average American household carries over $137,000 in debt. With the median household income coming in at just $55,322, based on 2016 from the US Census Bureau, many families find themselves struggling to meet their obligations.

When debt becomes more than a household can manage, many seek help. Credit counseling can be a viable solution, but many people aren’t fully aware of what these services provide and whether there is a cost. What people really want to know is this; is credit counseling free?

Is Credit Counseling Free?

Credit counseling can be free, but that isn’t necessarily the standard. Often, the organization charges administrative fees, which can vary dramatically.

Basic credit counseling services, such as household income and budget reviews, are commonly available at no cost. These are educational in nature, giving you a chance to work with a credit counselor to gain knowledge and improve your situation. However, if you elect to use a debt management plan through the service, there can be a cost.

Typically, there is a small setup fee for a debt management plan along with a monthly cost for managing your account. However, the vast majority of reputable agencies keep their prices low. They understand that anyone using their services is struggling with debt, and they don’t want to add unnecessary hardship to a challenging situation.

Often, your setup will be around $50, and monthly fees will be a similar amount. However, some organizations have waivers, eliminating or lowering the cost for those who are in significant financial trouble and can’t afford the cost without harming their ability to survive. In those situations, free debt management plans are possible.

Selecting a Credit Counseling Agency

Credit counseling is available through both for-profit and not-for-profit organizations. You need to find a reputable agency before acquiring any services.Usually, shopping around is the best approach. Research organizations that serve your area to locate the right one for you.

As you start researching, focus on a few key questions. Is the credit counseling agency licensed by your state? Are they accredited? Are the counselors certified?

If you are having trouble choosing an organization, look for members of the National Foundation for Credit Counseling as they adhere to strict standards regarding performance, data security, counselor accreditation, and customer service.

In most cases, going with a non-profit is a better approach as their fees are usually lower. However, not all non-profits are reputable. You still need to make sure they are legitimate.

You can check the Better Business Bureau to learn more about the agency’s reputation. Numerous complaints with the BBB is a red flag. Similarly, our state attorney general’s office can be a good resource.

After you narrow down the list, consider contacting each organization and requesting free information. This can include brochures about their services and educational materials.

If you want to move forward, ask for a written contract. It should outline all costs, available services, and the amount of time the program requires. If they won’t provide details in writing, that is a warning sign of a less-than-reputable agency.

How Does Credit Counseling Work?

After you select an agency, you’ll have an initial session with a credit counselor. This could be a phone call or an in-person meeting. Typically, each appointment lasts at least 20 minutes and can go for up to an hour.

A review of your personal finances gives the counselor information about your situation. After they collect the details, they can help you craft a plan. In most cases, they will assist with creating a budget. They also give other financial recommendations that may improve your circumstances. Often, you’ll receive information about useful tools and additional resources along the way too.

If your situation is especially challenging, they may recommend a debt management plan. Usually, these involve securing lower interest rates on your debts and setting up a new payment schedule. While this can make your monthly payments more manageable, consider this a last resort.

When you enter into a debt management plan, a few things occur. First, having to close the account of any debt you include is common. Most lenders consider it a condition for offering you a lower interest rate. If you go forward, closing a revolving account, like a credit card, can harm your credit score.

Second, you will likely have to make your debt payments to the credit counseling agency, not your lenders. If the organization is reputable, this isn’t typically an issue. They will accept your payment and then divvy the money out to your lenders.

However, less scrupulous agencies may not meet their obligation. They could take your money and not pay your debts on time, or even at all.

Even if you use a debt management plan with an agency, you are still fully responsible for paying back the money. That means, if a credit counseling agency doesn’t send your payments, you are liable.

Other recommendations are also possible. If your debt is insurmountable, the agency may suggest you consider bankruptcy. However, this is extremely rare, as most of these organizations focus on helping you repay your obligations.

Are There Credit Counseling Scams?

To put it simply, yes, there are credit counseling scams. While there are numerous reputable organizations across the country, some people take advantage of those who are looking for help.

There are signs that an agency may actually be a scam. For example, demanding an upfront fee before providing any information or not giving you a written contract in advance are both red flags. Also, making promises that sound too good to be true, like claiming you can “easily” get out of debt, should serve as a warning.

Incredibly high fees are also a reason to be wary of the organization. Legitimate credit counseling agencies don’t want to harm your financial situation. If the cost is going to add to your debt load or make managing your debt payments nearly impossible, then seek out another organization.

Ultimately, credit counseling agencies can be a great resource. You can access free information and assistance to help you improve, and potentially access options that can make your debt more manageable.

However, you must be diligent when choosing a credit counseling agency. Scams do exist, and not all of the organizations are reputable. Take the time to do some research first and contact a few agencies to see which one is right for you. If you think an agency may be a scam, move on to another one. There are numerous reputable organizations out there, so there is no need to take an unnecessary risk by signing up with an agency that makes you uncomfortable.

Have you ever used a credit counseling agency? Tell us about your experience in the comments below.

Looking for more great articles about managing your debt? Give these a try:

You Need a Credit Card Strategy for Rising Interests Rates
Unreimbursed Medical Bills are #1 Cause of Bankruptcies
Your Unpaid Student Loan Could Cost You Your Tax Refund

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By Dr. Charles Richards

Why is it that just when everything seems to be going well financially and you feel like you’re getting ahead, something seems to crop up that alters your plans? In my practice as a psychotherapist, I’ve seen this pattern play out in clients and others many times. If this has become a pattern for you, you may be unknowingly engaging in behaviors that are hurting your relationship with money. To uncover how you can stop sabotaging yourself financially, let’s look at ten common ways people psychologically undermine their relationship with money and what to do about them.

Tying Your Self-Esteem to the Amount of Money You Have

This is one of the most common ways that people hurt their psychological relationship with money. Many people believe that if they could somehow acquire more wealth — for example, get a raise or afford a bigger house — they’d finally feel good about themselves. I’ve seen this struggle in some of my clients, including affluent ones. Yet with each new purchase or rise in worldly esteem, their inner sense of worth, or lack of it, stays the same. Although it may seem paradoxical, believing that your value as a person is tied to your bank account can hold you back from achieving prosperity. While money helps many things, it has little long-term effect on one’s self-worth, and a sturdy sense of self-esteem is a cornerstone of what I consider a healthy psychology of wealth. Fortunately, the steps required to strengthen your financial health are the same ones that will increase your self-esteem — i.e., accomplishing even small tasks that are difficult, creative, or nurturing.

Allowing Yourself to Become Unconscious of How Much You’re Spending

Letting yourself lose sight of what you are spending may be the single most damaging thing you can do to your relationship with money. It’s also one of the easiest behaviors to slip into. Retailers and advertisers are experts at pushing our psychological “buy now” buttons. They use psychological tricks to lull us into spending more than we intended. This separates you not only from your money, but from a sense of mastery over your own resources and financial goals. Here’s a simple but powerful psychological trick you can use as a consumer: raise your awareness by writing things down. Write down your financial goals for the next year, quarter, week, and 24 hours. Then keep a journal of how much you are spending each day for a week or two. Do your spending habits match your goals?

Borrowing Money in Ways That Discourage Awareness of How Much Debt You’ve Accumulated

How many times a day do you pull out your credit card to make a purchase without even thinking about it? And when the bill comes, do you always remember what you bought? Credit cards are convenient, but they can make it easy to pile up debt. This is not only because you can use a credit card to borrow money instantaneously, but you can also make minimum payments almost indefinitely.

If you feel anxious and out of control of your money when you see your credit card bill, something is amiss. The anxiety itself can set up a self-defeating, up-and-down cycle of borrowing and spending (a.k.a., “retail therapy”) that only puts you deeper into debt, while making you feel more out of control and anxious. For daily purchases, it’s better to use debit cards or cash. This makes you more conscious of what you’re spending, since you can only buy what you can pay for. Credit is a powerful and positive tool when used well. To borrow without anxiety, seek out credit options that require you to deliberate about what you’re borrowing and buying, and that have disciplined repayment plans.

Negative Thinking Exacerbated by Expectations of the Worst

“I sure would like a better-paying job. But so many people are looking for jobs now. The competition is way too tough, and I’m no good at interviewing. There’s no way someone would want to hire me.” Sound familiar? If you really pay attention, you might be shocked at how many negative thoughts you have in a day. This negative inner chatter can undermine your self-confidence and cause you to miss financial opportunities that are right under your nose. When you find yourself thinking a negative thought, replace it with a positive one.

Reluctance to Give to Others

If you’re feeling financially pinched, generosity to others may feel like a low priority. You may hesitate to engage in even small acts of generosity because you’re afraid you won’t have enough for yourself. Yet this feeling, however factually based it may seem, can be a self-fulfilling prophecy and constricts your own monetary flow. Money can be regarded as a form of energy — energy that flows through our society, economy, and individual lives. A thriving psychology of wealth requires trusting that, no matter what happens, you will have enough. As a form of energy, money is never truly lost. To get the financial flow going in your own life, try being generous with others — with your time and attention, if your bank account is currently in a “modest” phase. Doing so can renew your energy, inspiration, and motivation to move forward.

Allowing Yourself to be Discouraged by the News Media

Have you noticed how much of the commentary and entertainment in the media these days is extreme? We have extreme sports, extreme politics, extreme makeovers, etc. If it isn’t mind-blowing, it isn’t newsworthy. And the good news doesn’t get much attention. Much of this “news” reinforces the idea that the economy has gone to the dogs and, with it, opportunities to create abundance in our personal lives. If you find yourself obsessively tuning into the bad news and fretting about it, take a break and read a book or watch a movie with an uplifting story or empowering financial message. Doing so can be a remarkably effective way to change your attitude about what’s possible.

Expecting Money to Buy Happiness

Perhaps you’ve heard it before: Money can’t buy happiness! As common sensical as this is, it can be easy to believe otherwise, especially if you’ve been struggling financially. Believing that money has special powers for generating happiness can cause you to postpone discovering and pursuing what will really manifest your vision of a fulfilling life. Thoughts like, “Everything would be OK if I were just rich,” or “I can’t start my dream business (or travel, or exercise properly…) until I have much more money” are self-defeating and usually simply untrue. While being financially comfortable certainly beats being broke, as Szifra Birke (who is both a wealth counselor and psychologist) wisely states, “Money tends not to solve personal problems; money solves money problems.” Put your attention and energy into what you can do, rather than what you can’t.

Hanging Out with Pessimists

Recent studies show that the people in our social networks have an outsized influence on our outlook, health, and even on our weight. Family, friends, and associates who gripe about their finances and fret about their prospects can negatively affect our own attitudes about money. Fear and pessimism can be contagious — but so can hope and enthusiasm. Cultivate relationships with people — co-workers, mentors, friends, and family members — who speak positively about money and are generally optimistic. The positive attitude that rubs off will help you see financial opportunities where you might have missed them before and give you more energy to pursue those opportunities.

Denial

While it’s beneficial to dodge the Debbie Downers in your world, putting your head in the sand and avoiding a realistic assessment of your finances can be downright dangerous. Interestingly, this kind of avoidance often produces more anxiety about money than knowing exactly what’s in those unopened bank and credit card statements. Anxiety isn’t a healthy state from which to make financial decisions. Facing your fear will most likely alleviate it. If you need support, ask a friend or family member to help you bite the bullet and take a clear-eyed look at your balance sheet. Armed with a realistic picture of your finances, you can start to make an action plan for either repairing or building on an already healthy state of financial well-being. Take small steps if you need to.

Fear of Taking Risks

Common sense says that saving and setting aside money for emergencies is prudent. The sense of security that savings can bring is worth its weight in gold. But fear and avoidance of all financial risk — including investments and even some debt — can severely limit your ability to move forward in life. The responsible use of credit — and the trust in yourself that it requires — is essential to the commerce of life, and investing in yourself is necessary for growth. This can mean anything from taking out an affordable installment loan to buy a more reliable car, to taking classes that will enhance your appeal to employers, to stretching a bit to purchase a classy suit for job interviews. You are always a worthy investment.

Charles Richards, Ph.D., is the author of the New York Times bestselling book, The Psychology of Wealth: Understand Your Relationship with Money and Achieve Prosperity, and a licensed psychotherapist in private practice in San Diego, California. You can learn more at PsychologyofWealth.org

How Does Credit Counseling Work and Is Credit Counseling Free?