How Much Does Credit Counseling Cost?

If you know you need to do something different but you’re not sure what or how, looking for debt relief help and lasting solutions is one of the smartest steps you can take. Financial struggles are stressful, yes, but they could also be opportunities to level up your financial game. Here’s the information you need to know about how much credit counseling costs.

Typical Fees for Credit Counseling 

Most credit counseling agencies provide free consultations. There are usually fees for services beyond your initial consultation.

Special services, such as pre-bankruptcy counseling or mortgage counseling, typically have their own modest fee, often under $50. 

Each credit counseling agency sets its own fees.

What Services Do Credit Counseling Agencies Provide?

Credit counselors help people pay off their debts. Here are some services credit counseling agencies provide if you enroll: 

• Set up a debt management plan (DMP). If you’re in need of debt relief, a counselor might suggest a debt management plan. A DMP is a structured plan to fully repay your unsecured debts in three to five years. 

• Boost your financial knowledge. A credit counselor could teach you how credit works and explain essential financial terms so you can make more informed decisions. 

• Give money management and budgeting guidance. If you enroll in a credit counseling program, you can review your spending with a counselor and create a budget that helps you reach your goals. 

How Does a Debt Management Plan Work?

Credit counseling agencies offer debt management plans or DMPs. A DMP is a customized debt repayment plan designed to fully repay your unsecured debts (mainly credit cards) in three to five years. Debt management plans don't reduce the debt you owe. The goal is to repay all unsecured debts. 

Your counselor can’t lower your debt, but is likely to negotiate with your creditors to waive certain fees and lower your interest rates. A lower interest rate could help you make faster headway against the debt.

Once enrolled in a plan, you'll make one monthly payment to the credit counseling agency. Your counselor will distribute the money to your creditors. Making one monthly payment could help to simplify your debt payoff strategy. However, your required payments could be a lot higher than you’re used to. That’s because credit card minimum payments are very low, but a DMP is designed to finish in three to five years. 

You’ll probably be required to close your credit accounts until your plan is complete. This helps ensure you don’t add more credit card debt while you’re getting help from your creditors. All of your current creditors can access your credit report, and if you break the agreement, they might back out of your plan.

Closing a credit card account that still has a balance is likely to have a negative effect on your credit. You’ll be in a better position to build and maintain good credit after you pay off your credit cards.

How Much Does a Debt Management Plan Cost? 

Debt management plans are typically subject to the following fees: 

• An initial set-up fee

• A monthly fee to administer your plan 

Debt management plan costs vary, but here's a general overview of what to expect: 

Debt management plan fees range from $0 to $79 per month (you could ask for a fee waiver if you have a financial hardship). It's also standard practice to charge an initial setup fee of $25 to $75 when enrolling in a debt management plan. 

The cost to you is very low because credit counseling agencies are funded by credit card companies. They can afford to charge you $20 or $30 a month (or even nothing at all), which is likely far less than the counselor earns in the time they spend on your file each month, because of that other source of funding. Because of that funding source, credit counselors may have an incentive to encourage you to fully pay off your credit card debt.

While you’re in a debt management plan, your credit counselor typically earns a percentage of your plan payments in exchange for managing and collecting your payments. 

Here’s an example of how much a debt management plan could cost you in the long run:

• Set-up fee: $40

• Monthly fee: $50 x 36 months  = $1,800

• Total fees: $1,840

Nonprofit Credit Counseling vs. Private Financial Coaching

Nonprofit credit counseling organizations offer free and low-cost credit counseling services. 

If you work with a private financial coach, you may be eligible for a free consultation but will pay service fees later. When hiring a private financial coach, you can usually expect to pay more for services compared to nonprofit credit counseling.

Are There Free Credit Counseling Options?

Consumer credit counseling agencies often offer a free initial consultation. But they charge fees for specialized services, like administering debt management plans. 

Completely free credit counseling solutions exist. For example, some banks offer workshops and courses to their account holders.

Is Credit Counseling Worth the Cost?

For many people, credit counseling is worth the money. To determine if credit counseling is a good fit for you, review credit card counseling pros and cons. You should also get clarity on the cost of any services you're interested in. It's best to work with a credit counseling agency that's transparent about fees.

Here are some ways credit counseling could help you: 

• Improve your financial literacy and money management skills if you join the program 

• Help you create a plan to pay off your debt 

• Get enrolled in a debt management plan 

• Help you get interest rates and fees reduced