Credit Counselor

Published on :

21 Aug, 2024

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A Credit Counselor is a finance professional who helps clients acquire, manage, and reduce their debt to improve credit scores. Their primary role is to acknowledge clients with their finances and help them with their budgeting and debt issues.

Usually, a certified credit counselor works with financial institutions, banks, and credit unions and acts as a guide to overcoming bankruptcy and debt issues. Clients have the freedom to connect with their counselors whenever they need clarification on the doubts related to their credit and budget issues.

What Is A Credit Counselor?

A credit counselor is a qualified and certified professional aiming to provide counseling services to clients trapped in debt crises or finding it difficult to manage finances.
The concept of these counselors dates back to the mid-20th century in the United States. In 1951, the establishment of NFCC gave rise to this profession.
To become a certified counselor, an individual must get a license from the NACCC and renew it every two years.
The median salary of these counselors ranges between $37,900 and $75,230 in the United States.

Credit Counselor Explained

Credit Counselor offers financial knowledge and advice to clients, making it easier for them to manage their debts well. They help them control their finances and prepare their budget, keeping into account the funds to be used in debt management. These professionals try to figure out the financial problems of an individual or entity, assessing the extent to which their improper debt management is responsible for the same. In short, a certified credit counselor helps in creating a strong financial budget.

The requirement for a credit counselor emerged with the emergence of credit counseling services in the United States when the - National Foundation for Credit Counseling (NFCC) was founded in 1951. Its main aim was to regulate the credit and debt issues and avoid bankruptcy before its arrival. Based on the two types of credit counseling services, credit counselors can be categorized as - non-profit and for-profit counselors.

Non-profit counselors are usually associated with credit counseling organizations, which are formed to serve public interests and work per the guidelines listed by the Internal Revenue Service (IRS). Some such counseling service providers are - NFCC and the Financial Counseling Association of America (FCAA). These consumer credit counselors have no profit-making intentions. Instead, the focus is on helping individuals and entities be financially stable and not go bankrupt due to improper debt management.

In contrast, for-profit credit counselor services, like any other for-profit businesses, aim to make a profit out of the services they offer. Unlike the former, they do not sell their services free of cost. Instead, they charge a righteous amount for the credit advice they provide to their clients, be it an individual or an entity.

Another report suggests that more than 4410 credit counselors are in the United States. Of these, 58.8% are women, and the rest (41.2%) are men. However, most were likely to work at private organizations rather than public companies.

Roles And Responsibilities

Credit counselor jobs allow professionals to cater to various types of services. Some of them include debt management, student loan counseling, and providing financial advice over budget issues. A good credit counselor also counsels over homeownership, bankruptcy, foreclosure, and others. Besides, these services extend to small businesses. Let us look at the roles and responsibilities of a credit counselor for a better understanding:

Identifying the reason or the root cause for the debt issues. Likewise, a strategy should be created.
Providing various strategies and plans for debt management to clients. Also, they must guide them on reducing bills and increasing credit scores.
Developing a budget plan as per the client's issues and as per their needs and financial goals.
Giving proper advice and educating them on financial topics. Also, communicating the strategy effectively.
Working with clients to set up a monthly budget to help them manage their liabilities (bills, loans) and other expenses.
Providing them with different debt relief options that can lower the debt amount. Also, providing clients with a solution to increase their credit limit.

Examples

Let us look at the examples of credit counselors for a better understanding:

Example #1

Stella finds herself trapped in debt after taking up loans from different lenders. She calculated the loan amount to be $22,000, while her income was reduced to half of what she made earlier. She shared the situation with one of her well-wishers, John, who was among one of the lenders. John recommended her to have a credit counselor on board to get out of the situation. She did the same, and in a month, she found all her loans settled. This is how counselors help when one feels drowned in debt.

Example #2

A February 2024 report depicts the rapid increase in the number of Americans seeking credit counseling services due to the increasing credit card balances nationwide. Money Management International, one of the significant nonprofit credit counselors in the US, confirmed witnessing a 68% yearly increase in the number of clients by January 2024, with people in their 20s constituting the majority of their clientele.

The credit card debt calculated in the United States is over a trillion dollars, making it mandatory for creditors to recommend credit counselors to help borrowers or debtors manage their debt and take care of the budgetary aspects to have a financially stable life.

How To Become?

Although skills play an essential role in the workspace, there are also some job requirements that one must fulfill. They include critical thinking, problem-solving, and direct communication.

So, let us look at the industry's requirements for credit counselor jobs:

Get Bachelor's Degree - Graduation in finance, accounting, psychology, or social work helps in developing certain credit counselor skills for the job.
Earn Certification - The next step involves earning a license from the National Association of Certified Credit Counselors (NACCC). It is an online course with an instructor that enables them to attempt 100 multiple-choice questions. Out of these, 70 is the minimum passing criterion. Besides, this license has validity for two years by paying a fee. As a result, an individual gets the tag of a certified credit counselor.
Gain Experience - Once a certified credit counselor gets a license, they can practice in any financial institution. As a result, it will enable them to develop their communication skills. In addition, they will establish good relations with the clients. Besides, they must also have Microsoft Office skills and a willingness to help people with debt crises.

Salary

According to a report, a credit counselor's average (median) salary is $47,580 per year as of 2022. Usually, it ranges between $37,900 to $59,390 annually. Another survey conducted by the U.S. Bureau of Labor Statistics (BLS) states that the highest salary paid was $74,310 per year. It depends on the demand and demographics of the area. While New York, Georgia, Ohio, Missouri, North Dakota, California, Alaska, and others provide high salaries to counselors, the range for Texas, Montana, South Dakota, and others remains between $34,750 and $44,790.

Frequently Asked Questions (FAQs)

Are credit counselors regulated under any act?

While the Federal Trade Commission (FTC) is the regulatory body that takes care of the functioning of the credit counseling agencies to an extent, it is the Regulation B of the Equal Credit Opportunity Act that makes it mandatory for creditors to offer such counseling services to consumers in case they are struggling with debt management and budgeting.

How much does a credit counselor cost?

If the counselor is from a non-profit organization, no fee is charged to the client. However, for a for-profit credit counseling agency, there is a fee of $40 to $75, depending on the counselor's service.

How many hours does a credit counselor work?

These counselors work weekdays from Monday to Friday for 40 hours every week. One counseling session is likely to last for an hour or two. However, on an annual basis, they work for 2080 hours.