Credit counseling is a method of eliminating debts usually performed by a 501(c) 3 not for profit Credit Counseling Agency. The goal is to help consumers who are burdened by unsecured debt to pay off their debts in a reasonable amount of time, usually five years. Credit counseling agencies charge clients a fee for their services, and receive a stipend from the creditors as well.

One of the drawbacks to using credit counseling is that a client's credit cards are closed. It is also difficult for a client to get another card while in the program. A notation reading “managed by CCS” can be attached to their credit history. While the label in and of itself is not a negative, being enrolled with a credit-counseling company program is an admission that debt has become burdensome. Many companies are hesitant to extend more credit to a person who may struggle to pay it back. There is a possibility of keeping one card open for emergencies but it may also close in light of the CCS notation.

There are several other potential drawbacks to using a credit-counseling program. The credit counseling proposal may be rejected for any reason of the creditors’ choosing.

A rejected proposal may result in additional late, over-limit, and finance charges, which will increase the balance before a proposal can be accepted. Accounts that have been sent to collection agencies may never accept a program.

The benefits extended may be less than expected.

Such benefits may not yield a significant savings in time and expense.

Some creditors even require a higher minimum monthly payment.

Credit-counseling works for clients are able to make their minimum monthly payment, but high annual percentage rates essentially negate these payments as soon as they are applied. It works well for people who are on time with payments. It works because creditors offer debt management programs to help committed clients pay off their debts. Seeking counseling demonstrates the client’s commitment toward that end. CCCS agencies also help the client meet the same due date each month.

Paying off the debt is accomplished by helping clients enroll with their creditor’s debt management programs. The primary benefit of these programs is a reduction in interest rates, which enable clients' minimum payments to actually lower the balance each month rather than maintain it in perpetuity. The common CCCS program is designed to have clients pay off their debts within five to seven years.

Every participating creditor has a specific set of criteria for admission into their debt management programs. In most cases, the minimum monthly payment must be at least 2% of the balance. It is usually advisable to propose slightly more than that to reduce the possibility of rejection. There is no way around these criteria, no way to pay less than the creditors demand.

In addition, the creditor demands that this payment arrive by a specific date each month. Credit Counseling is of no help if the program repeatedly drops due to late payments.