Do You Need Help From a Credit Counselor?

How to recognize the warning signs—and what might be holding you back.

Your school's financial aid director should be ready to discuss student debt issues with you.
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By 2007, at ages 57 and 68, Francine and Jim Bostick had racked up more than $120,000 in credit-card debt. They were juggling payments left and right to meet the minimum amount due each month on their 13 credit cards. When they reached their breaking point, they turned to Housing and Credit Counseling, Inc., in Topeka, Kan., for help.

Fast forward five years and the Bosticks—after working second jobs, living on a tight budget, and putting $2,500 each month toward their debt repayment plan—are now debt-free. "They're a perfect example of how it's never too late to seek help from a credit counselor," says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling, a network of accredited and certified credit-counseling agencies.

The Bosticks weren't the only ones who have accumulated a substantial amount of debt. In the wake of the Great Recession, with the country's unemployment rate reaching the highest level since the Great Depression, many Americans were forced to take on crippling amounts of debt.

As a nation, Americans owe $721 billion on outstanding credit cards, according to the Federal Reserve. The average U.S. household with at least one credit card owes nearly $15,950 in credit-card debt, according to CreditCards.com. Yet only a fraction of people seek aid from a credit counselor.

That can be partly attributed to the bad rap credit-counseling agencies have gotten by being confused with debt-settlement companies. Credit counselors advise people on how to make better budget and lifestyle decisions and develop a debt-management plan to pay back their creditors. Many counseling sessions are free (those with fees typically charge about $20 per session). Meanwhile, debt-settlement companies offer to negotiate with a person's creditors to slash the amount of debt they own—and many charge clients a large fee for their services.

Unfortunately, the debt-settlement industry is rife with scam artists and fraudulent groups, which has made it more difficult for credit counselors to earn people's trust. "Many debt-settlement agencies have made promises they can't keep, and they've effectively blurred the lines between them and us," Cunningham says.

The Consumer Financial Protection Bureau, formed in 2010, has started to quell some of those problems, but for many years deceptive debt-settlement agencies operated without a watchdog. "You couldn't turn on the radio without hearing those ads saying things like, 'We'll settle your debt for cents on the dollar,'" says Allie Vered, vice president of education and public awareness for ClearPoint Credit Counseling Solutions, headquartered in Richmond, Va.

Others may be afraid that consulting a credit counselor will hurt their credit score, but talking to one has no impact on a person's credit or credit report.

What's also stopped people from reaching out to credit counselors is the sense of shame that can accompany having to admit they owe a lot of debt. But Brian Oliver, vice president of counseling at CredAbility in Atlanta, says that's less of a problem now that credit counselors have made themselves accessible by phone and online. "Walking into a physical location can be intimidating, especially if the person doesn't want to admit face-to-face how much they're in debt," Oliver says. The ability to get help remotely alleviates some of the fear, he says.

Are you thinking about talking with a credit counselor but aren't sure if you need one? If any of these things apply to you, experts say a credit counselor can help:

Debt collectors are calling you. This might be the most obvious red flag, but it's also a sign that you should have sought help from a credit counselor long before reaching this point, according to David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. "The earlier you can get to a credit counselor, the better," he says, adding that it's never too late to seek help.