How Much Does Credit Counseling Cost?
Is there a cost and how much is the cost?
Martha in Chicago, IL
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How Much Does Credit Counseling Cost?
Want to get out of debt? But you don’t have the money to pay a counselor? April breaks down your options.
How much does credit counseling cost?
You won’t believe how much, because the counseling is free.
A certified credit counselor gives you a free debt analysis, because it doesn’t make sense to pay money to find out if you can get out of debt.
You’ll learn about your debts, your credit and your budget. You might be eligible for a debt management program. A DMP can cut your total credit card payments by up to 30 to 50 percent.
But there is a fee involved for most DMP clients, and that ranges from $0 to $79 a month. This depends on your debt amount, state regulations and your budget.
Even if you don’t want to sign up for a DMP or you find out it’s not really the best solution for you, you can always use the free debt analysis to save you money. The only cost? About 30 minutes of your time.
An expert answer from Consolidated Credit’s Financial Education Director
Breaking down the various costs associated with credit counseling
There are two steps in the credit counseling process. The first is entirely free with no obligation to sign up for anything. The second part may include a small monthly fee, but in truth, only about 12% of people who use credit counseling make it to Step 2.
Step 1: Free credit counseling session
All nonprofit consumer credit counseling agencies like Consolidated Credit offer a free debt and budget evaluation. It’s part of the requirement these agencies must meet to maintain their 501(c)3 status as a nonprofit organization. These agencies exist to educate consumers and help them find financial stability. So, this free credit counseling session is the cornerstone of all nonprofit credit counseling services.
During the 30-minute session, you talk to a certified credit counselor about your financial situation. They go over your income, expenses, debts and credit to get a full picture of where you stand. Then, they’re required by law to review ALL your options to get out of debt. Companies like Consolidated Credit don’t “sell” you a solution, even though they administer debt management programs. They must review all your options and advise you on the best way to go, even if it’s not through DMP enrollment.
For example, let’s say you owe $5,000 and have excellent credit. Your credit counselor will likely recommend do-it-yourself debt consolidation options, including debt consolidation loans and balance transfer credit cards.
A credit counselor will only recommend enrolling a debt management program if it’s the right solution for your situation. But even so, there’s no obligation to sign up for anything during your first session. You can thank them for their time, hang up, and decide what you want to do on your own time.
Step 2: What to expect from debt management program fees
We have another Ask the Expert that fully explains debt management fees. But for our purposes here, there are two numbers to keep in mind – those are $79 and $40. DMP fees are regulated by the federal government and by the state where you reside. Fees are capped nationwide at $79, so that’s the most you can expect to pay, regardless of how much you owe.
But the other number to keep in mind is $40. That’s the average fee a debt management program client pays with Consolidated Credit. What’s more, it’s generally the average fee that clients pay with any credit counseling agency. Again, since fees are regulated by states, they vary little from one company to the next.
More free stuff from credit counseling
As we mention above, credit counseling agencies exist as nonprofit entities in order to educate consumers on how to achieve financial stability. This means that while you’re enrolled in a debt management program, the credit counseling agency should provide a range of free financial resources and tools.
The goal of these resources is to help you learn how to budget and manage debt long-term. The idea is that the credit counseling team helps you learn how to become financially stable so that once you get out of debt you can stay that way.
How credit counseling costs compare to other solutions
It’s worth noting that credit counseling costs tend to be on the low end of what debt relief solutions cost overall. It’s important to recognize that any solution you use will have some costs to it, even bankruptcy.
- Balance transfer credit cards have a transfer fee applied to each transfer. You generally pay 3% of each balance transferred. If there is an interest rate applied to balance transfers on the card, that will also increase the cost.
- Debt consolidation loans typically have loan origination fees. These fees usually average at 1% of the amount borrowed. The interest rate on the loan will also add to the cost.
- Debt settlement programs have fairly high fees. You generally pay the company up to 5% of the original amount you owed. So, if you owed $25,000, then you could expect to pay $1,250 to settle the debt.
- Bankruptcy has filing fees, as well as fees to receive pre-bankruptcy credit counseling and post-bankruptcy debtor education. In other words, you end up paying for the counseling and financial education resources that you receive free when you enroll in a debt management program.
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