man looking at alternatives before considering filing for bankruptcy
Debt Management

If your debt has grown far out of control due to unemployment, medical expenses, or overextended credit, you may be thinking about making a major financial move like filing for bankruptcy. While bankruptcy is sometimes the only option for those in overwhelming amounts of debt, it isn’t always the case.

Before you make any decisions, there’s a financial resource readily available that could make your circumstances more manageable. It’s called credit counseling, and it may be able to help you identify a number of more preferable solutions to the situation you’re facing.

Bankruptcy can certainly help people in difficult situations get a fresh start, but it’s far from a magic wand that erases all debt. When thinking about filing for bankruptcy, there are a few key things to take into consideration.

Key Considerations of Filing for Bankruptcy

Doesn’t eliminate all debts: Debts that could remain after filing include most student loans, alimony and child support, unpaid taxes, and government-issued fines.

 Loss of non-exempt property: When a person files for Chapter 7 bankruptcy, their non-exempt property may be sold to repay lenders. Exempt property generally includes assets necessary to continue living and working, like a vehicle, work tools, and equity in a home.

Severely impacts credit: Chapter 7 bankruptcies are reported on credit reports for up to 10 years. Chapter 13 bankruptcies are reported for up to 7 years.

Cost of filing: Filing fees, bankruptcy trustee fees, attorney fees, and other assorted fees add up quickly, bringing the average cost of filing for bankruptcy into the thousands.

Why should I work with a credit counseling agency?

When your debt has become unmanageable, it’s important to have a detailed understanding of the options that are available to you. Getting in contact with a non-profit credit counseling organization like the National Foundation for Credit Counseling, or NFCC, could be a smart financial decision for precisely that reason.

A credit counseling agent will closely examine your situation and provide personalized, actionable advice to help you start getting your finances under control. If you need assistance with debt management, they can walk you through your options and recommend a course that’s best for your financial wellbeing.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed, which mandated that anyone filing for bankruptcy is required to take a credit counseling session at least 180 days before they can file. The purpose of these requirements is to ensure that people have exhausted all other options before deciding to move forward with bankruptcy.

Over the last 15 years, mandated pre-bankruptcy counseling has saved a significant number of people from having to file for bankruptcy. According to Pete Klipa, the Senior VP of Creditor Relations at the NFCC, “Roughly 35% of those who come to credit counseling for pre-bankruptcy counseling don’t file.”

Experienced credit counselors have seen every financial situation imaginable, and helped countless people manage their debt to avoid needless bankruptcy. By taking the time to speak to a credit counselor, you’ll be well aware of the alternatives that may be available to you.

How does credit counseling work?

When you reach out to a credit counseling agency, you’ll typically begin by scheduling an initial one-on-one session with one of their counselors. These sessions are roughly an hour long, and they can be done online, over the phone, or in-person – whatever you’re most comfortable with.

In the initial session, which is typically free, your counselor will review your financial situation and ask you about your income, expenses, and financial goals.

This session could also include:
  • free budgeting help
  • a free review of your credit report
  • referrals to valuable tools and resources
  • advice on next steps you can take to improve your finances

Certified credit counselors are well-trained in money and debt management, budgeting, and consumer credit, so they’re equipped to help you in any number of ways. Credit counselors also specialize in a variety of areas, including:

  • bankruptcy counseling
  • student loan counseling
  • mortgage and housing counseling

Out of all of the services that credit counseling agencies offer, debt management plans are what they’re most commonly known for.

What is a debt management plan?

Say, for example, you’re in a predicament where you’ve fallen behind on credit card payments and will be unable to pay them for the foreseeable future. Beyond giving you debt management advice, how could a credit counselor assist you with that?

In addition to helping you create an action plan and a detailed budget, credit counselors can work with you and your creditors to develop a debt management plan, or DMP.

Here’s how it works:

In a typical DMP, your credit counselor will negotiate an affordable payment schedule with creditors on your behalf. Through these negotiations, your counselor could get creditors to:

  • reduce your monthly payments
  • decrease your interest rates
  • waive fees on some of your debts

Both your credit counselor and creditors will come to an agreement on a payment schedule that’s realistic and within your budget. Rest assured, you’ll have the opportunity to review and approve their suggested plan before starting anything.

Once your DMP begins, you’ll make monthly payments to the credit counseling agency you’re working with. They’ll distribute those funds to your creditors according to the agreed-upon payment schedule, and over a period of 3 to 5 years, you’ll have repaid the debts you owed to creditors in full.

When it comes to costs, enrolling in a DMP is a fairly inexpensive way to manage your debt. According to, nonprofit credit counseling agencies typically charge between $25 – $50 for a monthly maintenance fee, and $50 – $75 for a one-time set-up fee.

How much debt is too much? Can a credit counseling agency still help me?

If you’re concerned that you may be in too much debt for credit counseling or a debt management plan to be of value, don’t be.

According to Klipa, “On average, credit counseling consumers have $15,000 in total credit card debt spread among 5.3 credit cards. We see higher and lower against this average. Credit counseling does not refuse anyone that comes seeking assistance – we counsel all levels of debt and everyone leaves with an action plan, even if they don’t have any ability to pay for that service.”

So, whether you’re high above the average amount of debt or far below, credit counselors are willing to help you devise an action plan that can help get your debt under control. And, if you’re unable to pay for the service, they’ll still provide you with valuable resources, tools, and educational materials you can use to improve your finances.

Where can I find a credit counselor?

If you think credit counseling could be an option worth pursuing, it’s important that you only seek assistance from counselors that are certified and counseling agencies that are accredited. The NFCC’s website can provide a great starting point.

Founded in 1951, the NFCC is the largest and most trusted non-profit counseling organization in the United States. Each credit counselor and agency that offers services through the NFCC is accredited, and with 600 offices across the country, there’s a good chance that help may not be too far away.

When your debt gets out of control, bankruptcy could be far from your only option. To schedule a financial review with an NFCC Certified Financial Counselor today, click here.


This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.


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