Which do you actually need: Nonprofit credit counselors or debt relief companies?


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When you’re struggling with debt, a little bit of help can go a long way — and a lot of help can go even further. But shopping around for debt relief assistance can be confusing. What, exactly, are these organizations offering?

Credit counseling organizations are generally non-profits that are dedicated to not only helping their clients get out of debt, but also creating a sustainable way forward with free or low-cost educational tools and resources. In other words, they’re more holistic about your financial situation, and they’re not in it for your money (though some may charge fees, usually relatively low, for their assistance).

Debt relief companies, on the other hand, are for-profit companies that charge you, often steeply, for the service of negotiating and settling your debt with your creditors or with collections agencies. In other words, they’re less about helping you get your money right and more about getting your money.

While both types of organizations can help you find relief from at least some of your debt, their motivations and structures are very different. Let’s take a closer look.

Debt Settlement vs Credit Counseling: What’s the Difference?

As mentioned, debt settlement is usually done by a for-profit debt settlement company that works to negotiate your debts with creditors or collections agencies for a fee. Not all creditors will negotiate with debt settlement companies, but if they will, you may be able to pay a lower overall amount. Keep in mind that it still may not immediately improve your credit score, and in some cases, may even make it worse (which we’ll discuss more in just a moment).

Credit counseling, on the other hand, is usually performed by financial professionals who work at non-profit credit counseling organizations. While they may help you create a debt management plan — potentially even one that might save you money — that’s not all they’re there to help you with.

Even if they don’t negotiate directly with your creditors, credit counselors can help you create or manage a budget, develop a sustainable plan to minimize debt over the long run, and give you access to low- or no-cost resources including workshops and educational materials. While they may assess a fee, it’s usually low, and they may also have options even if you can’t afford to pay them at all.

How Does Debt Settlement Work?

Debt settlement companies are just that: companies charging you for the service of settling debts. However, since not all creditors will even work with debt settlement companies, they may not actually be able to save you any money. If they can, they’ll be charging you for their service. Their fees may be a lot higher than a credit counselor’s would be.

Pros of Debt Settlement

  • Debt settlement might help you save money on very large debts. If a debt settlement company can successfully negotiate with your creditor, you may be able to get out of debt by paying far less than you would otherwise owe, so long as you can pay it as a lump sum.
  • Legally, your money must remain under your control while you’re saving it. The debt settlement company may require you to save up the lump sum in a special account. But even if they do, those funds must remain under your control until they are used by the company to pay off your debt.

Cons of Debt Settlement

  • Debt settlement is expensive. Even if the settlement is expensive, the company will charge you for their services, which eats into the amount you’re saving on your debts. Keep in mind that debt settlement companies are for-profit organizations.
  • Debt settlers aren’t looking at the whole picture. While a credit counselor may be able to help you come up with a sustainable, holistic plan to manage your money going forward, debt settlers are focused only on, well, settling your debt. This means you could wind up in the exact same place in the future, if your financial habits don’t change.
  • Debt settlement services might actually make your credit worse. Some debt settlement companies may tell you to stop paying your debt until they reach an agreement with the creditor, which could be negatively reflected in your credit score and history.
  • Debt settlement doesn’t always work. Because some creditors won’t negotiate with debt settlement companies, using one may not actually save you any money. (Note: According to Federal Trade Commission rules , a debt settlement company can never charge you for their services before they’re successfully rendered. If you encounter a debt settlement firm that’s trying to take your money up front, you shouldn’t work with them.)

What Is Credit Counseling?

Credit counseling is very different from debt settlement: It’s a holistic approach to money management offered by expert financial planners and advisors at a low cost.

While helping you negotiate and potentially lower your debts with creditors is one potential service a credit counselor may offer (though they may also not), their main concern is getting you set up for a successful financial future in the long term.

Pros of Credit Counseling

  • Credit counseling is built to be affordable. While credit counselors may charge a small fee for their services, they’re usually much lower than you’d pay for financial advice in any other context. Plus, no-cost options are often available for those with demonstrated need.
  • Credit counseling can help you build a sustainable financial future — not just settle a debt. By giving you the knowledge and tools you need to create positive financial habits, credit counseling can help you make a lasting change, not just pay off a bill.
  • Credit counseling can give you access to other educational opportunities and materials. Along with one-on-one credit counseling, these non-profit organizations may host community workshops and classes or provide you with free information.

Cons of Credit Counseling

  • Credit counseling requires you to do some of the work. Although credit counselors will assist you along the way, you’re the one who has to create (and stick to) a budget and form positive credit habits.

How Can a Non-Profit Credit Counselor Help You?

By helping you form the long-lasting financial habits that can keep you out of debt or make it easier to follow your monthly budget, working with a credit counselor can change the shape of your financial future.

In short, think of debt settlement agencies as for-profit firefighters: They may be able to help you put out a blazing debt spiral in an emergency, but they’ll charge you for the privilege. Non-profit credit counselors, on the other hand, help you put out the fire and teach you how to keep your financial life flame-free, all for low or no cost.

What Is the Process of Working with a Non-Profit Credit Counselor?

When you sign up to work with a credit counselor, you’ll likely start with an initial consultation session, which may be in person, over the phone, or over a video conferencing service. This initial consultation will likely last about an hour and may include going over your budget and creating a debt management plan.

Depending on your needs, your counselor may recommend follow-up sessions, or may direct you to workshops and resources to help you DIY your own financial education.

What You Should Know About Debt Relief Companies

While both debt settlement companies and credit counseling agencies can help you get out of an immediate debt crisis, rebuilding your credit is always a time-consuming and work-intensive process that takes persistence and patience. A credit counselor can help you tackle that project with support.

Keep in mind that there are ways to tackle a debt spiral yourself, too, such as taking out a personal loan in order to consolidate multiple lines of credit or debts.

The Takeaway

Debt settlement is offered by for-profit companies that may charge steeply for their services — and might not even be able to help. Credit counseling, on the other hand, is a more holistic service offered by non-profit organizations that have your best interests and a firm financial future at heart.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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8 ways to get the best credit score you can

8 ways to get the best credit score you can

Learning how to achieve and maintain a good credit score is a crucial part of your financial health. Not only can it be a badge that says your financial life is in good shape, it can also help you access credit and get approved for loans and insurance at more competitive rates. Being approved for lower interest rates and premiums can in turn save you tens of thousands of dollars over your lifetime.

A solid credit score can also have other perks, such as helping you get approved for products with better features, such as rewards credit cards.

While there’s no one size fits all solution on how to keep a good credit score, there are some best practices you can follow. Read on to learn more about this topic and actual tactics, including:

  • What is a credit score?
  • How can you maintain a good credit score?
  • What are tips to keep your credit score high?
  • How can new credit card users establish a credit score?


A credit score is a three digit number ranging from 300 to 850 that is an indicator of your credit behavior. Your score is calculated based on your credit history from all three credit bureaus — Experian, Equifax, and TransUnion — and is based on how lenders may perceive your risk as a borrower.

What exactly does that mean? By reviewing your past use of credit, your score reveals if you are more or less likely to pay back your loans on time. If you are more likely to repay your debts in a timely manner, the less risky you are.

The higher your credit score, the more creditworthy you are in the eyes of lenders.


Several factors can affect your credit score, such as your payment history, the number of loan or credit applications submitted, and the age of your accounts you hold. There are also different scoring models, such as FICO vs. VantageScore. Each weighs factors differently to arrive at a credit score.

Meaning, there may be some differences in your credit score.

Lenders may look at one credit score or all of them, plus different qualification criteria when deciding whether to approve you for a loan and at what interest rate.


Though there are different credit scoring models, most use similar financial behaviors to calculate them.

They’re grouped in the following categories:

  • Payment history: This factor is one of the most important factors in your credit score as it assesses whether you’re likely to pay your loan on time. Credit scoring models will look into current and past account activity, including any late or missed payments.
  • Amounts owed or available credit: The percentage of the available balance you’re using is your credit utilization. The more you are using available credit in your revolving accounts (like your credit cards and lines of credit), the more it could appear you rely too much on credit. This can make you look like a risky person to whom to lend.
  • Age of credit history: The longer your credit history, the more a lender can look into your credit behavior. It’s usually considered good to have a long credit history vs. a very short or recent one.
  • Account types: Having a different mix of loans offers more insight into how you handle various accounts. Credit-scoring models may not, however, use this as a major factor when calculating your score.
  • New or recent credit: The more recent applications you submit for new loans or credit accounts, the more risky you may appear to be. That’s because it may look like you need to rely on credit; that you are quickly trying to acquire different forms of access to funds.

(There are some exceptions, such as shopping around for mortgages within a short span of time.)

Thai Liang Lim/istockphoto

Understanding the importance of a good credit score and what goes into it can help you protect the one you have. The following are eight suggestions on how to maintain a good credit score.

1. Pay Your Credit Card Bills on Time

Ensuring you’re on top of your bills (not just your credit cards) will help keep a positive payment history in your credit reports. This is the single biggest contributing factor to your credit score at 30% to 40%. Consider setting up automatic payments or regular reminders to ensure you’re paying on time.


Your credit utilization is the percentage of the available limit you’re using on your revolving accounts like credit cards. Basically, you don’t want to spend close to or at your credit limit. A good rule of thumb to follow is to now use more than 30% of your overall credit limit.

So if you have one credit card with up to $10,000 as the limit, you want to keep your balance at $3,000 or lower.


Even if you don’t use your older credit cards that often, keeping them open means you can maintain your long credit history. Consider charging a small or occasional amount, whether an espresso or gas station fuel-up, to ensure your account stays open. This can reassure prospective lenders that you have been managing credit well for years.


Consider this as you try to keep a good credit score: Go slow. Since credit-scoring models look at the number of times you apply for new credit, only open one when you really need it. Stay strong in the face of offers to get free shipping or 10% off if you sign up for a card that many retailers promote.

Spreading out your applications is a good idea rather than regularly or heavily putting in a lot of card applications. By moving steadily and choosing a credit card and other types of funding carefully, you likely won’t raise red flags, such as that you need to rely heavily on credit.


Mistakes can happen, and errors in your credit reports could negatively affect your score. You can get your credit reports for free at AnnualCreditReport.com  from all three credit bureaus.

It’s wise to check your credit scores regularly, which won’t impact your score. If you see an error — whether it’s an account you don’t own or a bill marked unpaid that you know you took care of — dispute it as soon as possible.


Making payments in full will help you maintain a positive payment history and lower your credit utilization. Both of these can maintain your creditworthiness and save you money on interest charges.


Closing your old credit cards could shorten your credit history. It could also increase your credit utilization because it will lower your available credit limit. Even if you make the same amount in purchases, your credit utilization would go up when your credit score updates.

For example, if you currently have an overall credit limit of $28,000 and you have $7,000 in credit card balances, your credit utilization is 25%. If you close a credit card which had a $7,000 limit, you then lower your total available credit to $21,000 your credit utilization will go up to 33%.


It can be hard to say no to an invitation to try a pricey new restaurant or not tap to buy when scrolling through social media. But when you let your spending get out of hand, you may use your credit cards too much. It can feel like free money in the moment — but you still have to pay it back. If you overextend yourself, you may find it hard to pay your balance on time and risk a late or missed payment.

Instead, spend only what you can afford and try to avoid lifestyle creep (having your spending rise with your pay increases or even beyond them). That can help provide some guardrails for using credit cards responsibly.


Trying to establish a credit score can be a challenge since, ironically enough, you need credit to build credit.

If you are in this situation, there are several options to pursue, such as the following:

  • Open a secured credit card: A secured credit card is one where you’ll put down a refundable cash deposit that will act as your credit line. You can use this to establish credit and apply for an unsecured credit card. Some issuers will upgrade you once you make consistent on-time payments for a predetermined amount of time.
  • Apply for a credit builder loan: These types of loans are specifically geared towards helping you establish and build credit over time. Instead of getting the loan proceeds like a traditional loan, the funds are held in an escrow account until you pay back the loan in full.
  • Become an authorized user: You can ask a loved one, like a parent or even a close friend, if they’re willing to add your name on their credit card account. Doing so means the credit account will go in your credit history. Of course, that doesn’t give you access to use their account without restraint. The guardrails can be established between you and the original card holder.


Maintaining a good credit score (and keeping that score high over time) comes with perks such as increasing the likelihood of getting approved for loans at more favorable terms. You might qualify for lower interest rates, saving you a considerable amount of money over time.

Using a credit card wisely is one of the ways you can build and maintain your credit score. But that’s not all there is to opening a credit: You also likely want one with great perks.

This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.



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