Gotchu!
There's a chance with a lot of work that you could bring your C/D up to at least a B in Psych. However, it is clearly affecting your mental health.
I had quite a time with A-Levels as well, they are extremely stressful, and despite anything you've been told, you are so justified in feeling like this.
If you truly feel retaking is for you, then pursue it as much as you can. Explain just how bad you're feeling and hype up whatever subject you'd like to do in replacement. My best advice is to pick a subject you're good at above all else, it automatically makes it more enjoyable (mine was English).
If they can't accommodate you in retaking, you have a couple options.
1. Continue with all 3 of your current subjects into Y13. Work your ass off at Psych and try to focus on what you enjoy about it rather than getting a grade. Your current grades, even with the C/D are good; if university is on your mind then many unis would take you based on this, seriously. But as I say, be kind to yourself as you're already doing pretty well. And don't compare yourself with how others are doing in the classroom as you all have different goals.
2. Leave Sixth-form and pursue outside opportunities. Apply to college, or take up an apprenticeship; there are many different fields you can go into. However, if you planned on going to university, then obviously A-Levels are the obvious route.
If they let you retake, I can see you're thinking of English Lit or a combined. English Literature was
by far my favourite A-Level. Lots of essay writing, as expected, you have to remember a few quotes here and there; if you have a natural flair for English, you will adore it, you have a lot of freedom with coursework, yet I found it to be less work than both my other A-Levels.
Whatever happens, your mental health comes first and foremost. I'd spend time now looking into alternative options in case they turn down your proposal.
I agree that involving adults who know you well such as your counsellor might help; just be confident when you tell them you want this.
Good luck + please take extra care of yourself, you will get through this I promise