Credit Counseling

Why it matters

Reputable credit counseling is usually low-cost or free for the initial session, and legitimate agencies are typically nonprofit. Before filing bankruptcy, federal law generally requires completing a credit-counseling course from an agency approved by the U.S. Trustee Program, plus a debtor-education course before discharge. Outside of bankruptcy, a counselor can help build a budget and, where it fits, set up a debt management plan with creditors. Counseling is education and support, not legal advice, and it does not stop a lawsuit or erase debts. People comparing counseling with other paths sometimes also weigh settlement or bankruptcy, each of which has different trade-offs.

Example

Feeling overwhelmed by card balances, Tomas meets with a nonprofit credit counselor who reviews his budget for free. The counselor lays out several options, including a debt management plan that would consolidate his payments, and explains that counseling alone will not halt collection efforts. Tomas uses the session to understand his choices. Later, when he researches bankruptcy, he learns he would first need an approved credit-counseling course from a U.S. Trustee-approved agency.