What It’s Like to Work With a Credit Counselor

February 03, 2017

One of the things that our financial planning team talks about with people in distress about their debt level is the concept of using a non-profit credit counseling service to help them work their way out of debt. This usually happens after someone has had a few failed attempts at different “do it yourself” debt reduction strategies, like the “debt snowball” (pay off lowest balance first and when it’s gone, roll that payment into the next lowest balance debt and repeat till debt free) or “debt blaster” (pay off highest interest debt and then roll that payment into the next highest interest debt, etc.). After trying those and making very little progress, no progress or actually incurring more debt, people can be incredibly frustrated and feel like they need to take their efforts up a notch and get help from an external source.

When considering using an external source for help in getting out of debt, the number of options out there can be a bit daunting. There has also been enough fraud perpetrated by nefarious players who hold themselves out as debt reduction experts to make the landscape a little bit scary. Given that there is a great deal of uncertainty about how this vague concept of “credit counseling” actually works, I figured it would make sense to talk to a few people who have gone through the process to get their perspective.  Based on those conversations, here are some observations and things I learned that might be helpful for people who are ready to take that step to help their financial lives.

What did the process look like? The first step was a phone call with a counselor to talk about my situation and they pulled up a credit report. From there, we built a budget worksheet for me and my life. 

They contacted my credit card companies, got my rates reduced down to a really low interest rate and sent me a proposal that showed how much I’d pay each month and how many months I’d be paying. I’d pay them once per month and then they pay my credit card bill. If I sent in extra money, they’d apply that to each of my cards.

I’d get statements monthly and they charged a small fee ($25-$35 per month), which I wasn’t crazy about, but I paid it because I was seeing actual progress. While they are non-profit, they aren’t free and that was something I didn’t fully grasp at first. By the time I made my last payment, I had changed my spending habits, I was debt free and my credit score (after the initial drop) was higher than it had ever been. 

What surprised you? In order to qualify for the DMP, I had to complete a budget sheet and I had never done that. It helped them structure a plan that I could stick to with payments that I could actually handle. The closing of all the cards was also a surprise, but it makes sense. Once you’ve dug a hole and want to get out, it makes sense to put down the shovel.

What’s the best thing about using a credit counseling service? They helped me get out of debt and I had a schedule that made sense. Before entering into the DMP (debt management program), I was very scattered and would pay a bit extra on some cards but end up using others. It took 4 ½ years, but I went from over $30,000 in credit card debt to $0.

What’s the worst thing? Finding the right provider. My first shot at it, I used a company that called me. I ended up paying them for 6 months, they informed me to stop paying my credit card bills, and they never paid the bills. I feel like I got robbed, but I didn’t do my homework on them, so I take some of the responsibility for that.

Once I got to a non-profit credit counselor, I was able to get into a program that worked for me. I had to close every credit card except for one emergency card. My credit score dropped a lot when I stopped paying the credit cards and it took a while to recover, but once I got all the debt paid off, the initial pain was a distant memory so it probably wasn’t all that bad.

What warnings could you give to people considering working with a non-profit credit counselor? Be VERY careful with who you choose to work with! The non-profit credit counselors at debtadvice.org have a much better reputation than the for-profit wild wild west approach where you don’t know who is legit and who isn’t.

Don’t get into a DMP if you aren’t 100% committed to a multiyear process. If you’re looking for a magic pill that solves your debt issues overnight, this is probably not the right path for you. If you stick to the plan, you’ll get out of debt, but I’ve know people who start and get frustrated after 6 months and bail out of the program because they aren’t seeing results fast enough.

Like any tool out there in the financial world, the world of credit counseling isn’t for everyone. There are good things, not so great things and even the unexpected thing periodically. Do your homework, ask questions until you feel comfortable and get yourself out of debt whether you do it yourself, use a credit counselor, use a debt resolution company (future blog topic) or end up filing bankruptcy. Reducing and eliminating debt is a fantastic step toward getting yourself to a place where you’d call yourself financially secure.