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Do you struggle to keep your finances under control? You're not the only one. Nearly 43% of Americans failed a national literacy test. Millions of people across the country are in heavy credit card debt. Many don't have any money saved for retirement or don't know how to budget.

Wouldn't it be ideal if there were organizations ready to step in to help you learn about your finances? Well, there are. They are called consumer credit counseling agencies, and their resources could help you get out of debt. But before making a decision, you should learn about credit card counseling pros and cons.

What Is A Consumer Credit Counseling Agency?

Consumer credit counseling agencies are typically non-profit organizations that can advise you on money management and debt when you're struggling with your finances. If you need financial assistance, a credit counseling agency can help you:

Improve your financial knowledge.
Learn to budget and save money.
Know your debt relief options.
Get out of credit card debt, medical debt, and other types of unsecured debt.
Find student loan counseling and bankruptcy counseling services.

Consumer credit counseling agencies offer free workshops and resources that can help you with budgeting, debt management, saving money and establishing long-term financial goals. They have credit counselors working to evaluate your budget and discuss your financial concerns and provide guidance to improve your situation. Credit counseling agencies may help if you're having trouble paying off your debt. They can give you resources and advice, depending on how much you owe. They can also offer a Debt Management Plan to help you clean our slate.

What Is A Debt Management Plan?

Consumer credit counseling agencies offer something called a Debt Management Plan or Debt Management Program (DMP) designed to help you manage and pay off your debts. These plans can save you money if the counselor negotiates with your creditors to reduce the interest rates on your accounts and even eliminate certain fees.

How a DMP works:

You start with a financial assessment with a credit counselor. The credit counselor will evaluate your situation and discuss your income, monthly expenses, credit card and debt balances, and other financial obligations with you. The counselor will pull your credit report with a soft credit check that won't negatively impact your credit score. After reviewing your information, they will explain your debt relief options and let you know if a Debt Management plan is right for you.
If you qualify for a DMP, your credit counselor will help you enroll. You will decide which debts to include in the program and how much you can pay each month into your DMP account. The account will be run by your credit counseling agency to pay your creditors.
Your credit counseling agency will contact your creditors to negotiate a reduced interest rate, a concession rate. Then you'll make payments each month into an account the credit counseling agency uses to pay your creditors. Your credit counseling agency will also charge a monthly fee for maintaining a DMP.
You continue your monthly payments into your DMP account. Your credit counseling agency continues to pay your creditors until all your debt is paid off. Typically, the DMP lasts between 3 to 5 years.
You must agree to make regular monthly payments on time. Missing any payments could mean losing the plan´s benefits, such as any negotiated discounts or fee waivers.

A Debt Management Plan could be the right choice for you if:

You can afford to make monthly payments.
You intend to repay your debts in full.
You could use the help and guidance.
You don't want to file for bankruptcy or you don't qualify.
You want to learn how to keep a healthy credit score.

If you want to achieve these goals but you feel overwhelmed by the process, need help organizing your debts and payments and you're interested in getting a lower interest rate, a DMP could be right for you.

How Do You Qualify For A Debt Management Plan?

Your credit card, personal loan, medical debt and other unsecured debt should total around 15% to 39% of your annual income in order to qualify for a Debt Management Plan. Although technically, there is no minimum debt requirement to be eligible. You must agree to make monthly payments to your DMP before a consumer credit counseling agency lets you enroll.

Credit Card Counseling Pros And Cons

Like all other debt relief options, credit counseling comes with its own set of advantages and disadvantages.

Benefits of Consumer Credit Counseling

One of the biggest perks of working with a credit counseling agency is that they help you consolidate your outstanding debt into a single account.

By making just one monthly payment you can significantly simplify your finances. You won't have to worry about different due dates. Simpler repayment reduces financial stress.

Consider that you'd be able to consolidate without the need of taking a new loan or more debt. Additionally, since all of your DMP payments will go directly towards your debt, you might be able to pay off your debt more quickly than doing it alone.

Also, the credit counseling agency can negotiate with your creditors to get you a reduced interest rate. The goal is to have you repay your debt within five years, and that's more doable if your agency can reduce your rates, finance changes and fees.

Their credit counselor will help you create a comprehensive monthly budget and provide financial education so you'll learn to organize your money better and adopt healthier financial habits.

You can expect fewer collection calls on any delinquent accounts you have after enrolling in the DMP. After creditors accept your DMP, those bothersome phone calls, emails, and messages from debt collection agencies should stop or slow down.

Disadvantages of Consumer Credit Counseling

Credit counseling is a good option for more moderate levels of debts, but it's important to be aware of the potential disadvantages as well. If you have a large debt and don't make enough income, qualifying for debt counseling may be hard. And some creditors may not agree to participate in your DMP because of that. You'll need to pay back these creditors separately. DMPs only apply to unsecured debt, like personal loans or credit cards. So a DMP won't help with auto loans, a mortgage or other debts like student loans. You won't be able to use credit cards while your DMP is in effect and you'll have to close your credit accounts to avoid getting into more debt. New lines of credit will be closed to you, since some lenders will see your participation in a DMP as a red flag. While many credit counseling agencies are nonprofit and offer some free services, professional help isn't free. DMPs have a start up fee and monthly fees as well. Since fees vary, you'll need to do your research to find a credit counselor that offers an affordable plan. Your initial set up fee can cost $50 or more and monthly fees are often $40 to $70. Enrolling in a DMP and closing credit accounts may have a temporary negative impact on your credit score. But your score should improve soon if you make your payments on time. Lastly, there are limits to what a DMP can help you with. Although it is true that your credit counseling agency can help you decrease interest rates and waive certain fees, they can't help you reduce the principal amount you owe. If you have very high debt, other options like debt settlement may be more appropriate. Debt settlement could get you out of debt for less than a DMP may charge because it works by negotiating with your creditors to reduce the total amount you owe and not just the interest rate.

Credit Counseling Pros

Multiple debts consolidated into a single account with only one monthly payment. 100% of payments go toward canceling your debt. Potential savings in interest rates and fees. Learn essential money management skills. Expect fewer collection calls. Alleviate financial stress.

Credit Counseling Cons

Some creditors may refuse to participate. Not suitable for all debts, only unsecured debts. Your principal amount owed won't be reduced. You won't be able to use existing credit or open new credit. Your credit counseling agency may charge fees. Your credit score may drop temporarily.

If you think a DMP is the right solution for you after learning about credit counseling pros and cons, your next step is to find a reputable credit counseling agency in your area.

How To Find The Right Credit Counseling Agency For You

If you're looking for an agency to help you with your budget or you need to enroll in a DMP, here are some resources to help you find a credit counseling agency.

The U.S. Department of Justice has a credit counseling search tool that may help you find approved consumer credit counseling agencies in your area.
The National Foundation for Credit Counseling (NFCC, the largest nonprofit financial counseling organization in the U.S.) also offers a search tool for credit counseling agencies in your area.
The Financial Counseling Association of America is another useful resource to find credit counseling agencies in your state.
Some counseling agencies will appear on all of these lists.

Not all credit counseling agencies are legitimate, it's crucial to thoroughly research and consider all aspects of credit counseling before making a decision:

Check reviews from past customers online.
Verify that they are licensed and accredited in your state.
Verify that they are accredited by the NFCC, the FCAA or both.

Make sure they meet these criteria, or else keep looking.

Even if a credit counseling agency seems legitimate, don't let your guard down. Many companies might look good on paper but end up being scams. If a credit counseling agency seems too good to be true, keep an eye out for these red flags:

Their credit counselors are not certified or accredited by a third party organization like the NFCC.
They try to charge upfront fees before negotiating any new terms with your creditors.
They guarantee that they can improve your credit score.
They pressure you into a DMP without explaining your other options.
They are not upfront about their fees or how their DMP works.

Credit Counseling Agencies: What’s The Point?

Credit counseling agencies can offer multiple methods to manage your debt, from free resources to Debt Management Plans. With their help, you could pay off your debts faster and for less money than it would have taken by making minimum payments. But as with many other debt-relief options, credit counseling has its pros and cons. A credit counseling agency may not be the best choice when you're in a lot of debt and having trouble making minimum monthly payments. Consider all of your debt relief options before committing to one.