Non Profit Debt Counseling

Perhaps you've finally reached the conclusion that you need some relief, or help, getting out of debt. Maybe a friend has mentioned to you how non profit debt counseling would be helpful. That suggestion seems obvious: Why hire a for-profit counselor, when you can hire a non-profit debt counselor?

In this article, we're going to discuss some of the factors a consumer should consider when choosing to work with a debt or credit counselor. This includes a discussion of the kinds of services a good debt counselor will provide their clients. We'll also help you to find a good counselor, and finish up with some warnings about what can happen to your credit rating after you reorganize your debt.

For Profit versus Non Profit Counseling

Additional Resources

Making a decision between for-profit and non-profit debt counseling is not such a black and white decision. That's because the growing use, or abuse, of credit cards is resulting in a sharp increase in the competition among those in the debt / credit counseling service industry.

Whenever money is involved, you can be sure that some unscrupulous businesses will appear; willing to take advantage of the situation. This has resulted in many businesses professing to be non-profit, even if they've found ways to make a profit from your dire financial situation.

With that in mind, here are a couple of factors to consider. Let's say you manage to find a non-profit debt counselor from a reputable organization. This type of organization will likely depend on community volunteers that may, or may not, have a lot of experience in counseling. You may be fortunate to be assigned to a good counselor, or you might wind up with someone less experienced.

Let's compare this situation versus finding a for-profit counselor from a reputable business. Under these circumstances, there is a much greater chance that the person assigned to be your counselor will be a professional that is trained in debt counseling. Sometimes, but not always, you get what you pay for...

Finding Good Debt Counselors

If you've decided to explore non-profit debt counseling, then you need to make sure they have a 501(c) (3) form on file. If you are looking for a company over the web, they will probably mention this status on their "About" page. You can also find quality non-profit debt counseling member companies by searching in the National Foundation for Credit Counseling or NFCC website.

If you're looking for a professional debt counselor, then you can search for information on the American Association of Debt Management Organizations. The AADMO did a great deal of work with credit counselors before exiting the business in November 2010. Until a replacement organization materializes, sites claiming to participate in AADMO may still adhere to higher standards.

These two organizations attempt to apply some quality measures to this service industry, and often refer you to local or state agencies that maintain lists of qualified debt counselors. These credit organizations not only have training standards for counselors, but also require that member companies abide by their ethics standards too.

Services Provided by Counselors

The types of services provided by debt counselors will vary, depending on their client's individual circumstances. Usually the counselors will educate clients in the basics of home finances, including creating a budget. The counselor will want to have a detailed understanding of the current financial situation, and will work jointly with clients to outline a plan for recovery. This is often referred to as a debt management plan or DMP program.

Depending on individual circumstances, services could include budgeting, debt negotiation with creditors, as well as consolidating loans or credit card balances into a debt consolidation loan. One of the advantages of working with a good counselor is that they will attempt to minimize the impact on individual credit ratings.

Debt Counseling and Credit Ratings

Just because someone is working with a debt counselor does not automatically mean that their credit rating will be affected. As a matter of fact, good counselors will often help to minimize the current impact a poor payment history is having on a rating. If they can solve a client's debt problems by creating a better household budget, then there should be no impact on a credit rating.

As we've mentioned in our article on credit scores, there are five components that credit rating agencies use to calculate a FICO score:

Payment History - paying bills on time helps a score, while late payments hurt a score.
Outstanding Debt - the more someone owes others relative to the credit they've been extended, the lower the credit score.
Credit History - the more information a credit bureau has on payment patterns, the more certain they can be about future payment patterns. Longer credit histories, translate into higher credit scores.
New Credit - recent applications for new credit, tend to lower scores. This is because new credit carries with it additional non-payment risk, until a good repayment pattern is established.
Miscellaneous Factors - these are minor factors that can be used to calculate a credit score such as the different types of loans outstanding.

If you decide to work with a non profit debt counselor, and you touch any of the factors that go into your credit score, then there is a very good chance that your credit score will decline. The good news is that studies conducted by Georgetown University's Credit Research Center showed that consumers who were recommended for a debt management plan by credit counselors, and chose to start payments, had a significantly lower incidence of bankruptcy. The creditworthiness of consumers who participated in debt management programs actually improved.

Credit Repair Services

Finally, be wary of counselors that promise you extensive debt or credit repair services. The only practical action a counselor can take to help clean up your credit report is to remove inaccuracies in the credit history portion of the report. If they find something on your report that doesn't belong there, they are skilled at getting it removed.

If your credit report is an accurate account of a poor payment history, there is nothing they can legally do to change this fact. The most important thing is to reestablish the kinds of payment patterns that creditors are looking for in a borrower.

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