Free Credit Counseling and Debt Management Plans

Why nonprofit credit counseling exists

Most people in debt encounter two types of services:

1. Nonprofit credit counseling agencies — accredited 501(c)(3)s that provide free or low-cost help to negotiate with creditors and build a payoff plan
2. For-profit debt settlement companies — which charge thousands in fees, damage your credit, and often get sued for deceptive practices

This article is about the first kind.

Find a vetted nonprofit credit counselor: Call the National Foundation for Credit Counseling (NFCC) at 1-800-388-2227 — operates 24/7 with referrals to NFCC-member agencies in your area. Or visit nfcc.org.

What nonprofit credit counselors do

A reputable credit counseling agency offers:

• Free initial consultation — typically 30–60 minutes, in person or by phone
• Comprehensive budget review — they go through your income, expenses, and debts
• Personalized action plan — what to pay first, where to cut, who to call
• Debt Management Plan (DMP) — if appropriate, a structured 3–5 year payoff with reduced interest rates
• Education — financial literacy classes, often free

Most agencies are accredited by the NFCC or the Financial Counseling Association of America (FCAA) — look for these badges.

How a Debt Management Plan works

A DMP is the main tool credit counselors offer. Here's how:

1. The counselor reviews your debts (credit cards, medical bills, personal loans).
2. They contact each creditor and negotiate reduced interest rates — often dropping cards from 25% APR to 6–10%.
3. You make one monthly payment to the agency.
4. The agency distributes that payment to your creditors each month.
5. Typical DMP runs 3–5 years and ends with you debt-free.

Costs: A typical DMP has a small monthly fee — $25–$50/month. Some states require fee waivers for very low-income clients. The fee is much less than what you'd save in interest.

Who qualifies for a DMP

Most people with unsecured consumer debt ($5,000–$50,000+) qualify. Common debt types that work in DMPs:

• Credit card balances
• Some personal loans
• Some medical debt
• Some store credit (Macy's, Best Buy, etc.)

Debt that doesn't go in a DMP:

• Mortgages
• Auto loans
• Student loans (federal — different relief options exist)
• Tax debt (use IRS hardship programs instead)
• Child support arrears

What credit counseling won't do

• It won't erase your debt. You'll pay back the principal in full.
• It won't dramatically raise your credit score quickly. Closing accounts during a DMP can actually dip your score temporarily, though it usually recovers as you make payments.
• It won't stop creditor lawsuits already filed. Get a lawyer for those.
• It won't fix tax debt or student loans (different programs handle those).

How to spot a scam (debt settlement red flags)

For-profit "debt settlement" or "debt relief" companies are very different from nonprofit counseling. Run if you see:

• Promises to "settle for pennies on the dollar"
• Upfront fees before any service is performed (illegal under federal law)
• Pressure to stop paying creditors while saving for "settlement"
• Claims that the company is "government-approved" or "affiliated with the IRS"
• Robo-call or text solicitations
• Names that sound official but aren't (e.g., "National Debt Relief Council")

The CFPB has sued multiple debt settlement companies for deceptive practices. The FTC's Telemarketing Sales Rule prohibits them from charging upfront fees, but many violate it anyway.

Bankruptcy as an option

Sometimes the math doesn't work — your debts are just too big to repay even with reduced interest. In those cases, bankruptcy may be the right answer.

Two consumer types:

• Chapter 7 — liquidates eligible assets and discharges most unsecured debt. Usually completes in 4–6 months. Income-tested.
• Chapter 13 — 3–5 year repayment plan that protects your home and assets. For people with regular income who don't pass Chapter 7's means test.

Federal law requires you to complete credit counseling within 180 days before filing bankruptcy and another financial education course before discharge. Most NFCC-member agencies provide both.

If considering bankruptcy:

• Talk to a bankruptcy attorney first (most offer free consultations)
• Many areas have legal aid bankruptcy clinics for very low-income filers — call your local LSC-funded legal aid office or 211 for referral

Other debt-specific resources

• Federal student loans: Income-driven repayment, Public Service Loan Forgiveness — call 1-800-433-3243 or visit studentaid.gov
• IRS tax debt: Offer in Compromise, installment agreements, currently-not-collectible status — call 1-800-829-1040
• Medical debt: Negotiate with hospital billing departments. The CFPB has resources at consumerfinance.gov/medical
• Predatory loan harassment: File a complaint with the CFPB at consumerfinance.gov/complaint

A note from us

Debt is one of the most stressful situations families face, and the industry is full of bad actors selling "fast" solutions that make things worse. A team members can refer you to a vetted NFCC-member counselor near you, tell you what to ask about Debt Management Plans, and flag if your situation actually calls for legal aid or bankruptcy counseling instead. Call (844) 572-3682 — no judgment, no fees.