Credit counseling can be helpful for some people, but it’s important to be cautious. Promises to “wipe away your debt problems painlessly” are often too good to be true. While reputable nonprofit agencies can help people who have fallen behind on their debts, others may not operate in your best interest.

The National Foundation for Credit Counseling (NFCC) originally developed the concept of negotiating lower interest rates and structured repayment plans. As consumer debt increased, many competing agencies appeared—some legitimate, others less trustworthy.

Some agencies negotiate effectively on your behalf. Others charge large upfront fees, pay excessive executive salaries, or keep money that should be going to your creditors. Some even target people who are not behind on their payments but simply want lower interest rates.

The most problematic companies are not true credit counselors but “debt settlement” firms. They often promise to eliminate your debts for pennies on the dollar while charging thousands of dollars upfront. Many take your money and disappear, leaving you in worse financial shape.

Credit counseling has grown into a multi-billion-dollar industry, and the IRS has expressed concern that some organizations misuse their nonprofit status to avoid consumer protection laws.

If you are current on your bills and able to make payments, you likely do not need credit counseling. If your interest rates are too high, you can often negotiate directly with your credit card companies.

When Credit Counseling May Be a Good Idea

• You cannot make the minimum payments on your credit cards
• Creditors or collection agencies are calling you
• You have tried to negotiate repayment plans on your own without success