How Much Does Credit Counseling Cost?

Credit counseling costs vary by agency, and many nonprofit agencies exist. Most credit counseling services start with a free consultation. A credit counselor reviews your budget, explains your options, and helps you build a plan to manage your unsecured debt. 

You should leave your credit counseling consultation with an action plan—and a clear cost breakdown. Knowing what to expect could help you choose an agency that fits your budget and your goals.

Typical Fees for Credit Counseling

Credit counseling is a service that aims to help you manage debt and build better money habits. Most credit counseling agencies provide free consultations so you can see if it's the right path for you.

Special services, such as pre-bankruptcy counseling or mortgage counseling, typically have their own modest fee, often under $50. Housing and foreclosure counseling is often free through HUD-approved programs. 

If you enroll in a debt management plan (DMP), fees tend to vary based on how much debt you enroll and how many creditors are involved. Expect an initial enrollment fee, then a monthly account or admin fee. More on DMP-specific costs below.

What Services Do Credit Counseling Agencies Provide?

Credit counselors help people pay off their debts, and most agencies review your full financial picture before recommending a specific service. Here are some services credit counseling agencies may 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 personal finance terms to help you make more informed decisions about borrowing and repayment.

• Give money management and budgeting guidance. If you enroll in a credit counseling program, you could 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.

While your credit counselor can't lower your debt, they do attempt 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. 

A debt management plan works best with steady income, since you'll need to make the same monthly payment for the length of the plan. Your required payments could be higher than your minimum credit card payments, since minimum card payments aren't designed to pay off your debt quickly. DMP payments are intended to pay off your enrolled debts 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.

How Much Does a Debt Management Plan Cost?

Debt management plans typically come with two fees:

• An initial set-up fee

• A monthly fee to administer your plan

Debt management plan costs vary by state and agency. Monthly fees generally range from $0 to $80 per month (you could ask for a fee waiver if you have a financial hardship). It's also standard practice to charge an initial set-up fee of $25 to $75 when enrolling in a debt management plan.

The caps on fees for nonprofit credit counseling and DMPs are set at the state level, so your actual cost depends partly on where you live. For example, Texas allows a set-up fee up to $140, with monthly fee of $14 per account up to $72 total per month. Maryland, on the other hand, caps monthly fees at $8 per account not to exceed $40 per month.

Here's an idea of how your overall costs could look for a three-year DMP:

• Set-up fee: $40

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

• Total fees: $1,840

A smaller enrolled balance from fewer creditors could reduce your monthly fee. You may also finish the program sooner. Here's how that might look:

• Set-up fee: $40

• Monthly fee: $25 x 24 months = $600

• Total fees: $640

Even with these fees, you may not be out of pocket as much as you think. If your credit counselor can negotiate lower interest rates on your enrolled debts, those reduced interest fees could offset the cost of the DMP (or more).

Do credit counselors make money from creditors?

If you're wondering how DMPs can have such low fees, you might be surprised to learn it's partially due to credit card companies. Many nonprofit credit counseling agencies actually receive their funding from major creditors, often through grants. This external funding means agencies can charge you $40 or $50 a month, or sometimes nothing at all, even though a counselor spends real time managing your file each month. 

So, credit counselors have an incentive to help you fully repay your credit card debt because the agency may be partially funded by the creditors you’re repaying. Additionally, 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.

Nonprofit Credit Counseling vs. Private Financial Coaching

Nonprofit credit counseling organizations offer free and low-cost credit counseling services, and their counselors are typically certified through the NFCC or another national accrediting body. Nonprofit agencies are subject to state caps on the fees they can charge for debt management services.

If you work with a private financial coach, you may be eligible for a free consultation. Private financial coaches don't have the same legal caps on fees. A private coach may bill by the session or with a flat monthly fee. You can search for a financial coach through the AFCPE.

Are There Free Credit Counseling Options?

Consumer credit counseling agencies often offer a free initial consultation. They typically 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. Some employers offer free financial counseling as part of an employee assistance program. Military members and veterans also have access to free financial counseling through nonprofit organizations that focus on their needs. 

Community action agencies and local nonprofits in many areas may offer free budgeting workshops open to the public. Ask your bank, credit union, or employer whether they offer a free financial wellness benefit before you pay for services elsewhere.

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, since the value of the service depends as much on the guidance you receive as it does on the price you pay. 

Credit counseling tends to fit people with steady income and unsecured debt, like credit cards, who want structure and support while they pay down what they owe. A few signs it might fit your budget:

• You have steady income to cover a new monthly payment on top of your regular bills.

• You don't need your total balance reduced, but you want professional money management guidance and credit education.

• You can commit to closing the credit accounts included in your plan for three to five years.

Here are some ways credit counseling could help you:

• Improved financial literacy and money management skills

• A plan to pay off your debt

• Enrollment in a debt management plan

• Lower interest rates and fees

How Do Credit Counseling Costs Compare to Other Debt Relief Options?

Credit counseling isn't the only way to manage unsecured debt, and the right option depends on your situation and your budget. Of the paid options, credit counseling generally has the lowest upfront cost, since most agencies charge little or nothing to get started.

Debt consolidation combines multiple debts into one loan with a fixed monthly payment. Some lenders may charge an origination fee when you open the loan, up to 12% of the borrowed amount. You'll also pay interest. Most lenders offer personal loan terms of two to six years.

Debt settlement is different from a debt management plan. A debt settlement company negotiates with your creditors to accept less than you owe. Settlement fees are usually based on a percentage of your enrolled debt rather than a flat monthly rate. A settlement fee of 15% to 25% of your enrolled debt is common. Expect to take at least two to four years to complete a debt settlement program.

Bankruptcy requires paying court filing fees and required educational courses. It's also highly recommended to use a bankruptcy attorney, which means paying attorney fees. How long bankruptcy takes depends on the type you file: Chapter 7 could be complete in three or four months, while Chapter 13 payment plans take three to five years.

Whichever option you choose, your total cost depends heavily on how much debt you enroll and how long repayment takes. Ask for the full fee schedule in writing before you sign up.

Debt relief is available in California and across the country. The first step matters most, so explore debt relief in California today.

Debt Payoff Strategies That Don't Charge a Fee

If you'd rather try a do-it-yourself approach first, two popular DIY debt repayment strategies don't involve any fees: 

• The debt avalanche method has you pay extra toward the debt with the highest interest rate while making minimum payments on everything else. Once that balance is paid off, you move to the next-highest rate, and so on.

• The debt snowball method works the same way, except you target your smallest balance first. This lets you pay off one balance quickly, building momentum.

Both methods take discipline and a steady income, and neither includes the negotiation or accountability a credit counselor provides. Either could work well if you don't need professional guidance.

How to Spot a Legitimate Credit Counseling Agency

A reputable credit counseling agency is upfront about its costs before you enroll in anything. Choose a nonprofit agency that offers a free initial consultation and discusses multiple options, not just a debt management plan. A trustworthy counselor explains every fee in writing and doesn't pressure you to enroll in a specific program. 

Ask a few direct questions before you commit to a plan.

• What are all the fees for this service, including set-up and monthly costs?

• Is my initial consultation free?

• Are you a nonprofit organization, and are your counselors certified?

• How will this program affect my credit?

• What happens if I miss a payment?

Your state attorney general's office keeps complaint records for agencies operating in your state, which could be worth reviewing before you enroll with a specific one. If an agency doesn't clearly explain its fees, consider other agencies.

What if Counseling Fees Don't Fit Your Budget?

If the standard credit counseling fees don't fit your budget, ask about a hardship waiver before you rule it out. Many nonprofit agencies reduce or waive set-up and monthly fees for clients with limited income, and some rely on grant funding to keep costs low for everyone. 

An employer-sponsored assistance program may also cover the cost of an initial session at no charge to you. Ask about a sliding fee scale too, since many agencies adjust their monthly fee based on your income and household size rather than charging every client the same rate.

Tackle Financial Challenges

The right debt relief option depends on your unsecured debt and your goals. Explore debt relief options to find the right fit for your situation. Take the first step when you're ready.