Credit Counseling

DEFINITION of 'Credit Counseling'

Personalized counseling services that provide guidance and support for those who have gotten in over their heads financially. The objective of most credit counseling is to help the creditor avoid bankruptcy, as well as provide basic education on financial management. Many counseling services also negotiate with creditors on behalf of the borrower to reduce interest rates and late fees.

BREAKING DOWN 'Credit Counseling'

Bankruptcy law mandates that anyone filing for bankruptcy must first undergo credit counseling before being approved. Many counselors charge reasonable fees for their services, but the consumer counseling industry is fraught with misrepresentation and even fraud. As such, those who seek a credit counselor should avoid any company that charges large upfront fees or make unrealistic promises. In addition, legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.