Credit Card Counseling Pros and Cons: A Complete Analysis for 2025

Deciding to tackle your debt means you're already on the right path. Next, you need to figure out the best debt relief strategy and how to master your money.

Credit counseling is a way to improve your financial education and get help managing your debt. The tools and resources can be helpful if you can afford payments and you want guidance, accountability, and a structured plan. However, a credit counselor can't help you get rid of debt for less than you owe.

We'll consider all of the pros and cons of credit counseling, as well as how to find a credit counselor in your area. Thus armed, you can decide if credit counseling is the right strategy to reach your financial goals.

What Is Credit Counseling? Comprehensive Overview

Credit counseling is a service generally provided by nonprofit consumer credit counseling agencies. Certified credit counselors offer money management advice and debt help. This can include workshops and individual counseling on personal finance and debt. 

Most credit counseling agencies offer a free initial consultation. Then, at most agencies, services are only available if you sign up for a debt management plan. 

Here are some examples of what a credit counselor could help you do if you enroll in a debt management program:

• Set up a debt management plan (DMP). A DMP is a formal debt consolidation program offered by credit counseling agencies. It’s for unsecured debts like credit cards and personal loans. You have to be able to afford a monthly payment big enough to pay off your debts in three to five years. 

• Build a budget. A good budget is a vital part of money management. Budgets can be intimidating to set up for the first time. Credit counselors can go over your income and expenses with you and help you create a realistic budget.

• Check your credit reports and scores. Having high credit scores could unlock the best interest rates and most rewarding credit cards. A credit counselor can show you how to check your credit reports and scores, as well as give advice for improving your credit.

• Manage your spending. Credit counselors can give you tips based on your spending habits and show you where you could spend less. Sometimes an outside perspective can help you pinpoint details you missed.

• Set financial goals and start saving. It's much easier to reach your goals when you have a plan. A credit counselor could help you figure out what your financial goals are—and how to reach them.

The ideal outcome of credit counseling is that you learn and master the skills you need to pay off debt and manage your finances. 

It's important to set your expectations for what you can get out of credit counseling—and what you can't. Credit counseling and DMPs can help you deal with your debt, but require large monthly payments for many years. Consider other debt solutions if you can’t afford to fully repay your debts. 

A note about other credit counseling agency services: Some credit counseling agencies provide pre bankruptcy counseling that all bankruptcy filers are required to complete, pre discharge financial education that’s required before your bankruptcy case is made final, and other services. For this article, we’ll focus on services related to debt and financial education outside of bankruptcy.

Credit counseling requirements

You generally only need to meet a few criteria to take part in credit counseling:

• Be a resident of the state in which you're getting counseling. This is due to state-specific regulations for financial service providers.

• Have no active bankruptcy cases. Some credit counseling services won't be available to you until you complete any ongoing bankruptcy proceedings.

• Pay the fee for ongoing services. The initial consultation will typically be free, but ongoing services or programs are likely to have fees.

• Be willing to share basic information about your income, expenses, and debts with the counselor and listen to their advice. Credit counseling will be much more effective if you're open to the process and ready to make real changes in your life.

Individual services offered by the credit counseling agency may have other requirements. For example, a debt management plan can have specific criteria for eligibility. These can include minimum income and debt levels, as well as an agreement to close your credit accounts.

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How Debt Management Plans Work in Detail

A debt management plan (DMP) is a program offered by credit counseling agencies for debt repayment. Here's a look at the basic process:

• You request an evaluation by a credit counselor. You'll discuss your income, expenses, debts, and other financial obligations and goals. The specific requirements for a DMP can vary by agency, but you'll need enough income to repay your debts.

• If you qualify, the counselor can then help you enroll in a DMP. The two of you will discuss which debts can be included, how much you could pay each month, and how you’ll handle your other bills outside the program. 

• The credit counselor contacts your creditors. Your creditors can choose to participate in a DMP or not. Credit counseling agencies are typically funded by credit card issuers, so those creditors usually agree. If they agree, your counselor may negotiate for lower interest rates and fee waivers. Then, you sign the agreement and start your DMP.

• You’ll pay fees. After your DMP is set up, you’ll pay a start-up fee. Then you’ll make monthly payments into an account that the credit counseling agency uses to pay your creditors. Your credit counseling agency will also collect a modest monthly fee for maintaining your DMP. 

• You’ll close your credit accounts. Expect credit score damage when you close credit accounts that still have a balance. That’s normal. Building a history of on-time payments and clearing your credit card debts are two giant steps toward a good credit standing.  

• You make your payments. You continue to pay into your DMP account, and your credit counseling agency continues paying your creditors until all your debt is gone. This process usually lasts three to five years.

You must make regular payments on time per your plan to stay in good standing. If you don’t, your creditors can back out of the agreement, and your accounts will go back to their regular interest rates. You’ll lose out on any other benefits your credit counselor negotiated for you. 

Credit Card Counseling Pros and Cons: Quick View

Comprehensive Analysis of Credit Counseling Benefits

The benefits of credit counseling depend a lot on what services you use. Overall, credit counseling can offer:

• Improved financial literacy. Experienced credit counselors help you create a workable budget and build better financial habits. You'll learn the key skills you need to manage your money and make smart financial choices.

• Professional guidance. Credit counselors are part advisor and part teacher, giving you the tools and resources to manage your debt as well as the knowledge to stay on top of your finances going forward.

If you also take part in a DMP, you may enjoy these benefits:

• Lower interest rates. Credit counseling agencies negotiate with your creditors to reduce interest rates, fees, and finance charges. The goal of DMPs is to allow you to pay off existing debt within about five years. 

• A single monthly payment. If you're looking to simplify your finances, a DMP helps by consolidating multiple debts into one payment. There's no more worrying about having different due dates or double-checking to see if you've paid each creditor the correct amount.  

• No need to get a new loan. DMPs allow you to consolidate your existing debt without taking on a new loan. 

• Reduced collection calls. Once creditors agree to work with you through a DMP, phone calls, emails, and letters related to collection attempts on those accounts should slow down or stop altogether. 

• Credit score improvement. Even though your score might drop at the beginning, completing a DMP could help you improve your credit score over time. Making consistent, on-time payments is key to a good credit standing.

• Light at the end of the tunnel. You can find a lot of stress relief in simply having a plan to get rid of your debt.

In-Depth Review of Credit Counseling Limitations

The educational component to credit counseling has few drawbacks. Pretty much everyone can benefit from expert financial advice and education.

Debt management plans aren't a good fit for everyone. DMPs have potential downsides, including:

• Qualification challenges. If you carry large debts but don't earn enough to comfortably cover them, you may find it difficult to qualify for a DMP. In addition, some creditors may not agree to participate in your DMP, which would mean carrying on with separate repayment plans. 

• Limited to unsecured debt. A DMP only works with unsecured debt like credit cards and personal loans. If making a mortgage or auto loan payment is tough, a DMP won't help. DMPs also don't enroll student loans. 

• No new credit. While enrolled in a DMP, you can't use existing credit or open new credit accounts, which may be hard. You’ll also have to close credit accounts to prevent new debt from accumulating. Your current creditors can check your credit reports and back out of the program if you don’t comply.

• Fees. There are usually fees associated with DMPs, including a start-up fee and ongoing monthly fees. These fees vary by credit counseling agency, so you'll have to research to find a program you can afford. Typically, the initial setup fee averages around $38, while monthly fees average around $27 a month.

• Initial credit score impact. You're likely to notice a dip in your credit score at first if your DMP involves closing credit card accounts. This dip may be temporary as you rebuild positive payment history.

• Principal amount unchanged. A DMP can result in decreased interest rates and reduced fees, but you'll still need to repay your full principal balances as part of the program.

Credit Counseling vs. Other Debt Relief Options

It's not always easy to figure out the best way to manage your debt. Here's a quick look at how credit counseling compares to some other debt relief options:

How do DMPs compare to other debt solutions? Let's take a deeper dive.

DMPs vs. debt settlement

Debt settlement is when your creditor agrees to accept less than you owe to settle your credit card debt. The process typically involves negotiating with your creditors to find an amount everyone can agree on to get rid of the debt. You can negotiate your own debts, or let a professional debt settlement company negotiate for you.

Depending on how many debts you have, debt settlement could take a few months or a few years. A professional debt settlement program typically takes two to four years to complete. Most people settle their first debt within a few months.

A DMP could save you some money by reducing your interest rates and/or waiving some fees, it won't reduce the amount of your debt. A DMP also requires going through a credit counseling agency. You can’t set up a DMP on your own.

A DMP program typically lasts three to five years.

DMPs vs. bankruptcy

There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. If you qualify for Chapter 7, a bankruptcy court may discharge (wipe out) much or all of your unsecured debt in a matter of months.

Chapter 7 bankruptcy requires passing a means test. If your income is too high compared to your debt, you might not qualify. In that case, you might consider Chapter 13 bankruptcy. Chapter 13 bankruptcy restructures your debt into a repayment plan that lasts three to five years and may also discharge some of your debts.

A DMP is somewhat similar to Chpater 13 bankruptcy in that it results in a repayment plan. Unlike a DMP, however, Chapter 13 takes place in a bankruptcy court. Your creditors have no choice about whether to participate. Chapter 13 could also be used to get caught up on secured debts like mortgages.

DMPs vs. debt consolidation loans

A debt consolidation loan is a new loan you take out to pay off multiple smaller debts. This works best if you have good credit and can qualify for a lower interest rate. Consolidating your debts means you’ll make just one monthly payment instead of having multiple payments to track.

A DMP shares similarities with consolidation loans. You could replace multiple payments with a single payment, and you might get a lower interest rate. 

That said, a DMP is not a loan. You don't need to have good credit to qualify. 

If you get a debt consolidation loan, the lender won’t restrict your ability to use credit cards while you’re paying off the loan. But loans don’t typically come with financial education and guidance.

DMPs vs. DIY debt management

There are a lot of debt management strategies you could use, including many that you can do yourself. Two popular methods include the debt snowball and the debt avalanche.

Neither of these strategies reduces your interest rates or consolidates your debt, which a DMP can do. Also, a DMP isn't DIY. You can only get a DMP through a credit counseling agency. You also don't control how much of each payment goes toward each debt or the order in which they're paid off.

How to Choose a Legitimate Credit Counseling Agency

Whether you’re seeking help with your budget or need to enroll in a DMP, these resources could help you find a credit counseling agency:

• The U.S. Department of Justice has a credit counseling search tool that could help you locate approved consumer credit counseling agencies in your area.

• The National Foundation for Credit Counseling (NFCC) also offers a search tool for credit counseling agencies near you. The NFCC is the largest nonprofit financial counseling organization in the U.S.

• You can also consult the Financial Counseling Association of America (FCAA) to find a credit counseling agency in your state.

Not all credit counseling agencies are legitimate, so watch for these red flags:

• Not certified or accredited by a third-party organization such as NFCC.

• Charges upfront fees before they negotiate any new terms with your creditors.

• Guarantees that using their service will improve your credit score.

• Pressure to enroll you into a DMP without telling you about your other options.

• Skimpy information about fees or how their DMP works.

• Bad customer reviews or consumer complaints.

Credit Counseling Agencies: The Bottom Line

Credit counseling agencies can offer multiple ways to deal with debt stress, from free resources to debt management plans. With their help, you could be debt-free faster and for less money than it would take to pay off your debt by making minimum payments. But, like all other debt-relief options, credit counseling has pros and cons.

If you’re deep in debt and having trouble making minimum monthly payments, a credit counseling agency may not be the best choice. Debt settlement with the help of Freedom Debt Relief may be a good option if you want to get rid of debt for less than you owe. See how Freedom Debt Relief works and if it's for you.