Choosing a credit counselor? Here are the red flags to look for.

If you spot the warning signs while searching for a credit counselor, you may want to keep looking. Getty Images

It can be surprisingly easy for debt to pile up right now, even if you've successfully managed your credit card bills, loan payments and other debt obligations in the past. Part of the issue is that with inflation continuing to stretch household budgets, many people have been forced to lean on their short-term options, like credit cards, just to cover their basic expenses. But as those balances grow and the payments become harder to manage, it makes sense to seek help from a credit counselor to try and regain control of the issue. 

If you've found yourself dealing with a growing stack of bills or are struggling to keep up with minimum payments recently, a good credit counselor can help you take control of your finances, create a plan to manage your debt and even work with your creditors to secure more manageable repayment terms. But just like with any industry, not every credit counselor or agency is as helpful or trustworthy as they seem. While many agencies operate with transparency and integrity, some are more focused on raking in profits than actually helping you. 

That's why it's important to know what to watch out for before you sign up. By recognizing the warning signs early in the process, you can protect yourself and find a professional who has the right tools on hand to help improve your financial health.

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Red flags to watch for when choosing a credit counselor

Here are some of the common red flags that could signal a credit counselor, or the agency they work for, may not be the right option:

They promise quick fixes

Be extremely wary of any credit counselor who promises to eliminate your debt or dramatically improve your debt burden in a short timeframe. Legitimate credit counselors will be honest about the challenges ahead and set realistic expectations instead. They'll explain that debt management plans typically take three to five years to complete and that credit improvement happens gradually. They'll also be honest about the limitations of debt management and let you know if other debt relief options would work better for your situation.

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They ask for payment before providing any services

Legitimate credit counseling organizations will typically offer initial consultations for free or at minimal cost. During these consultations, they should clearly explain any fees for their services, and those fees should be reasonable (think small monthly amounts rather than large lump sums). If a credit counselor pressures you to pay hundreds or thousands of dollars upfront, especially before you receive any services, walk away. 

They don't offer detailed explanations of their services

Transparency is key when it comes to managing your debt. A trustworthy credit counselor will walk you through their process step-by-step, explain how a debt management plan works, outline associated fees and help you understand how their recommendations will affect your finances. They should also educate you about different strategies, like debt consolidation, bankruptcy or simply improving your budgeting skills, and help you decide which is most appropriate for your situation. If the counselor's answers seem vague, they won't explain how their services work or they dodge your questions, proceed with caution. 

They promote proprietary products or services

Be cautious of any credit counselor who seems more interested in selling you specific financial products than in addressing your overall financial situation. Some less reputable agencies have relationships with lenders or financial institutions and receive commissions for referrals, and a counselor who immediately suggests debt consolidation loans, specific credit cards or other products without thoroughly analyzing your situation could be prioritizing their commission over your best interests. 

They lack accreditation or nonprofit status

Most reputable credit counseling agencies are nonprofit and accredited by organizations that ensure the agencies meet certain standards of transparency, ethics and service quality. If you can't verify the agency's credentials or nonprofit status, think twice before working with them.

There are multiple consumer complaints or bad reviews

Before committing to any credit counseling service, do your homework. Check with the Better Business Bureau, read reviews online and look up complaints through your state's attorney general's office or the Consumer Financial Protection Bureau (CFPB). A pattern of negative feedback, especially concerning hidden fees or poor communication, is a sign you should look elsewhere.

They promise to negotiate debt

Credit counselors are not debt settlement companies, and they don't (or shouldn't) promise to reduce the amount you owe by negotiating directly with creditors for deep discounts. Their role is typically to help you pay back your debt in full through structured plans. If someone claiming to be a credit counselor promises to settle your debts for next to nothing, they're likely operating outside the boundaries of traditional counseling and could be putting your credit at risk.

The bottom line

Credit counseling can be a powerful step toward getting your finances back on track, but only if you choose the right help. A reputable counselor will work with you to understand your full financial picture, explore multiple solutions and offer honest, transparent guidance. So, trust your instincts and take the time to verify credentials, check reviews and compare options. If you come across someone making grand promises, asking for money upfront or pressuring you into quick decisions, it may be time to walk away. 

Angelica Leicht

Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.