A credit counseling service, otherwise known as debt counselling in the United Kingdom, is the service that offers to educate consumers on techniques used to avoid incurring of debts that could not be repaid. People who avail of credit counseling services are usually those who are in grave need of debt relief or those who need to avoid being indebted further.

Credit counseling also entails negotiations with creditors to create a DMP (debt management plan) for the consumer. The DMP helps a debtor to repay a debt by defining the a repayment scheme with the particular creditor. Credit counselors usually work out DMPs that allow consumers to reduce their payments, interest rates, and fees, so that the clients would be able to managed their debts easily. Creditors dictate the terms to be worked on with the DMP and the credit counselors base debt management plan on these terms to determine the reductions in interests and payments to be offered to the clients.

How Credit Counseling Service Began

The first credit counseling services were first offered by grantors who formed the National Foundation for Credit Counseling (NFCC) in the United States in 1951. The foundation aimed to help prevent bankruptcy among consumers by promoting financial literacy. By 1993 the AICCCA (Association of Independent Consumer Credit Counseling Agencies) was created in response to the need for standardizing ethical conduct and excellence in the industry of credit counseling. The AICCCA, which was the first competitor of NFCC, revolutionized the credit counseling service by introducing a phone delivery system of programs for debt management. While many, particularly the NFCC, were opposed to this system, the system caught later on and became practiced alongside face-to-face or personal counseling. Some years after, the AADMO (American Association of Debt Management Organizations) was formed, and is now the largest among the leading trade organizations.

While many credit counseling service providers are members of trade organizations, agencies are not really required to join an organization. As of now, there are more than 1,000 existing credit counseling agencies in the USA. The credit counseling service has extended to other continents as it is also now growing as an industry in Europe for both profit and non-profit firms and organizations.

Credit Counseling Service Criticisms

The credit counseling service faced much criticism during the late 1980s and the early 1990s. The existence of some creditors in the Board of Directors of NFCC induced suspicions of monopolistic practices. By the early 90's the occurrence of abuse by credit counseling agencies increased, raising questions regarding the industry as a whole. There were also questions raised regarding the means upon which credit counseling agencies receive compensation, which is usually from the distribution of creditors' debt collections; this led to allegations that the credit counseling service is just a means of collection for creditors.

Because of such criticisms mentioned, together with those not mentioned, the industry of credit counseling is expected to face an enduring change because of the scrutiny forwarded by both the consumers and the government regulators regarding how the credit counseling service should be paid. This poses a great threat to the many debt-ridden consumers who are left wanting of new ways to alleviate their situation.

Whether the credit counseling service is questionable or not is still subject to debate. However, many find its cause still very much worthwhile. Perhaps the industry needs more time to define certain things, in order to come up with a sounder system in keeping people from succumbing to debts.

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