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How Does Debt Counseling Work?

It is important to first know that debt settlement and credit counseling are two different things. Consumer debt counseling streamlines your debts into a single monthly payment and generally has a lower interest rate. Debt settlement is a program where a debt relief agency will negotiate with your creditors on your behalf to lower your principal balance of debt owed and sometimes also negotiate a lower interest rate. So as you can see, the main difference between debt settlement and credit counseling is that credit counseling debt relief services do not lower your principal balance, just your interest rate. It is important, however to thoroughly look into both debt settlement and credit counseling so that you know which option is right for you.

Credit debt relief counseling is partially about getting a financial education. Debt counseling can teach you better financial habits so that you can solve your current debt problems, and hopefully, stay out of them in the future. Your debt management consultant may suggest that you enroll in a debt management plan (DMP). This does come with an additional monthly cost, however some consumers prefer this option because it allows them to focus on one monthly payment.


A debt management plan goes beyond consolidated debt counseling. It gives you a structured program with monthly payments to help pay off your debts. Your consolidated debt counseling agency should personalize this plan to you. Once your consumer debt counseling consultant assess your individual situation, they will negotiate with your creditors on your behalf to lower your interest rate.


The lowered interest rate in debt consolidation credit counseling is referred to as a “concession rate.” If this rate is agreed to by your creditors, then your single monthly payment to the debt counseling services plan will be based off of the new concession rate.

What to Look for in a Debt Consolidation Credit Counseling Company

Finding a reputable consumer debt counseling service is very important. You should take the time to research credit card counseling debt consolidation companies and compare them. Be sure to look at reviews for each of the credit debt counseling companies to see if they offer good customer service.

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If you can, get recommendations and referrals from family, friends or even your company. Some companies offer referrals as part of their employee benefits. Don’t let embarrassment hold you back from getting the trustworthy debt counseling services you need.

Other ways to research a potential debt counseling agency is to check with the Better Business Bureau to see if the company has had any complaints and whether those complaints were resolved.

Also look to see if the credit and debt counseling company is accredited and licensed in your state. Accredited consumer debt counseling agencies employ certified debt management consultants plus they have strict customer service and data security guidelines.

Lastly, when researching credit debt counseling agencies, make sure that the credit and debt counseling company offers financial education along with their debt consolidation credit counseling. The goal of consumer debt counseling is to help you become and stay debt free.

Debt Relief Counseling Program

All debt relief options come with positives and negatives. It is important that you research all your options, including debt relief counseling, to know what is right for you.

Advantages of Debt Relief Counseling

Credit and debt counseling works as a debt consolidation tool. Because your debts are combined into a single monthly payment, it simplifies the process of paying off your debts. Debt consolidation credit counseling also lowers your interest rate, making it less expensive to pay off your debts owed. Also, enrolling in a DMP through a credit card debt consolidation counseling company can help protect you from collections and help keep you from becoming delinquent on your debt payments.

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Disadvantages of Debt Relief Counseling

While enrolling in a consolidated debt counseling program won’t hurt your credit score directly, it could be noted on your credit report that you are paying creditors through a debt counseling program. Some lenders view debt counseling as a credit risk and it could impact your ability to open new lines of credit.

Also, some or all of your credit cards will be closed as you will be paying a monthly fee for credit and debt counseling services and you be paying back 100% of your debt and accumulated interest. You should also know that your monthly payment may be higher in a debt counseling program.



When Not to Go for Debt Counseling

Consolidated debt counseling is not the right option for everyone. To find out if you are a good candidate for credit counseling debt relief, first ask yourself a few questions:

  1. Are you current on at least one credit card?
  2. Can you afford afford your currently monthly payments?
  3. If so, can you pay more than the minimum each month?
  4. Do you have multiple accounts that each have high interest rates?

If you answered “no” to one or more of those questions, then credit debt counseling may not be the best option for you.

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