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What Actually Happens When You Enter Debt Counseling

Published May 21, 2020

5 minute read

Devon Taylor

By Devon Taylor

Reviewed by Expert Riley Adams, CPA

Debt is a fact of life for most adults. According to, consumer debt in the U.S. was close to $14 trillion at the end of 2019. Every American household currently carries an average of $8,398 in credit card debt. Additional debts include car loans, mortgages, home equity lines of credit, back taxes, and student loans. It’s an overwhelming amount of red ink. It’s a problem that is sending a growing number of people into debt counseling.

For many, the prospect of entering debt counseling is intimidating. It can also be embarrassing, since many see it as admitting failure. However, the short-term embarrassment and financial sacrifices are more than worth it. Debt counseling can help alleviate the pressure that comes with being overburdened with debt. There’s no shame in seeking out help. Don’t be afraid! Here’s what actually happens when you enter debt counseling.

Finding a Debt Counselor

First things first. As an initial step, you will need to find a debt counselor. The easiest way to find one is by calling the National Foundation for Credit Counseling. (You can also use their online application form.) The foundation will connect you to a non-profit debt counseling organization that will help you while not charging you too much money.

Meetings can occur in-person, by telephone, or via video conference. Your initial meeting with a counselor should be fairly cheap or even free. After that, there’s typically an initial set-up fee of up to $75 and an ongoing monthly fee of between $25 and $75. Beware of scams, though. If you feel that a debt counselor is charging an exorbitant amount of money, chances are they might not be legitimate. There are plenty of scammers out there, trying to take advantage of you. Be sure to protect yourself and move on quickly to a credible debt counselor.

Review of Your Finances

During the first meeting, you’ll discuss your personal financial situation. Be completely honest, and provide an accurate overview of your finances. This process can be uncomfortable, especially if you need to discuss personal and painful details of your life, like a divorce or job loss. However, be as open as you can. It will only help the counselor serve you better in the long run. Trust us, they’ve heard plenty of embarrassing money stories already.

You will need to show the counselor your current debts, as well as your income and any assets. This will require careful accounting on your part. Be sure to provide as much relevant information as you can. The counselor needs to know the circumstances that led you into a debt trap, to make sure you avoid doing it again. Try to remember that a debt counselor is there to help you, not cast judgment on you or your lifestyle.

Confirmation of Information

Following the initial meeting, the counselor will likely do some homework. They will confirm the information you provided and get a detailed account of your financial circumstances. This can involve ordering a copy of your credit report, reviewing your recent tax returns, credit card bills and other loan statements, as well as scrutinizing your pay stubs. This may feel obtrusive, but it’s an important step for the counselor to take if they are going to help you turn things around. Keep in mind that a counselor will not take any actions unless you approve of it.

In most cases, you will have to sign forms to grant your counselor permission to review your documents. This is true of your credit report and tax returns, at the very least. Don’t worry though. You’re not giving up any control of your finances. In fact, having your credit report and taxes reviewed will not hurt your credit score. You actually can (and should) get a copy of your credit report from the three major credit bureaus once a year. Start at

Debt Management Plan

Once the counselor reviews your finances, they will have an understanding of your debt, income, and assets. Next they will next develop what’s known as a “debt management plan” for you to follow. A debt management plan can involve many different steps and remedies. There is no one-size-fits-all approach. Depending on your individual situation, a counselor may have a number of different solutions. They might recommend that you consolidate your debts, pay them off individually over several years, or file for bankruptcy.

Some debt counselors might advise you to manage your debt on your own once you’re given a plan. Others may wish to remain actively involved in your situation. It depends how confident they are in your ability to dig yourself out of the hole. The important thing is to take their advice to heart. Make sure you understand their plan. If you have any reservations, be sure to speak up. The plan can potentially be altered.

These plans can range from short (six months) to long (several years) term. The exact length depends on your level of debt and your ability to pay it back. Committing to making sizable payments every month is going to sting for a while, but it needs to be done.

Dealing With Your Creditors

One of the many advantages of working with a debt counselor is that they will work with your creditors on your behalf. They will attempt to form an agreement that may include a lower interest rate or an extended repayment timeline. They can also arrange to have your debts consolidated so that you make only one low payment each month.

Instead of making high interest payments to all your debt accounts, you’ll make one payment to your debt management plan. Ideally, this will cost you less in the long run. However, you must stick to these payments religiously. Not having to deal with your creditors directly is a huge stress relief for anyone feeling overwhelmed and stressed by their debt.

Improving Your Credit Score

Another benefit of working with a debt counselor is that it can help clean up your credit report and improve your overall credit score. It might take a while, but those outstanding debts will be paid off and lower your credit utilization rate. This, combined with regular payments in your debt management plan will cause your credit score to slowly rise. This can lead to more favorable interest rates and loan terms going forward.

As you work through your debt management plan and gradually improve your finances, the debt counselor can help you report your success to the credit bureaus. That will ensure your lower debt levels and improved finances are reflected in your credit report. Work with the debt counselor and learn how to manage your credit reports on your own once you’re out of debt counseling.

The Last Word

Debt counseling doesn’t need to be scary or intimidating. Remember that debt counselors are there to help you turn your finances around. They have experience dealing with all types of people and financial circumstances. Chances are you debt counselor has seen it all, so don’t be embarrassed by a failed business venture or nasty divorce. These things happen. Instead, keep a positive attitude, be upfront and open about your finances, and work with the counselor to get out of debt. The only real shame would be to continue down the road to financial ruin.

Couple Getting Professional Debt Counseling


Devon Taylor

Managing Editor

Devon is an experienced writer and a father of three young children. He's simultaneously trying to build college funds and plan for an eventual retirement. He's been in online publishing since 2013 and has a degree from the University of Guelph. In his free time, he loves fanatically following the Blue Jays and Toronto FC, camping with his family, and playing video games.

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