Non profit credit counseling ... is that possible these days? Well, yes to some extent but you have to be careful and know what questions to ask if you are considering joining.
Usually non profit credit counseling agencies will try to enroll you on their Debt Management Plan or DMP. DMPs allow consumers to pay off their debts, such as credit card balances, by making a single, consolidated monthly payment to the non profit credit counseling outfit, which then pays to the creditors of debts covered by this plan. These non profit counseling also provides tutoring on personal finance and money management.
Since the agencies claim non profit status, they don't care to make money, right? Not so fast. While non profit counseling programs operated by universities, military bases, credit unions, and housing authorities are likely to charge very little or nothing for their services and some local banks do provide completely non profit or low cost financial counseling services, others will find a way to make money.
The most common way is charging set up fees for your DMP or take monthly donations. Simply, the non profit credit counseling entity will take certain piece of that consolidated monthly payment, which you, the consumer are convinced goes entirely to pay off your debts. Some consumers agree on paying a small donation from time to time, only to discover that the non profit agency turns these supposedly occasional voluntarily donations into mandatory monthly fees by automatically deducting money from consumers' payments without adequate disclosure. On the top they don't really counsel you.
There are other situations when non profit credit counseling can cause you much more harm than good:
- holding the entire first monthly payment instead of passing it to creditors
- failing to pay creditors in a timely manner or at all
- promising falsely to eliminate accurate negative information from your credit report
- promising falsely to lower your interest rates, monthly payments, overall debt by an unrealistic amount
- exaggerating the amount of money consumers will save by signing up for a DMP
With that said, there are many good non profit credit counseling organizations that will work to educate and help you. Their DMPs are good and have no hidden fees or set up charges. So if you are looking for a credit counseling make sure that you carefully explore all options, ask all the questions about fees, payments made on schedule and more importantly, have realistic expectations of how much you pay and how long will it take to get a fresh start. Get affirmative answers and ask to put them in writing. Make sure that non profit means it.
