Nonprofit credit counseling services are nonprofit entities that work with consumers who are deeply in debt. These agencies try to work with creditors and borrowers to create repayment schedules that are manageable for both parties. They also provide counseling and financial advice to consumers about how to get out of debt. They are often set up by the credit card industries themselves.
When a consumer starts working with these credit counseling services, they should prepare to be honest with their counselor. The counselor will ask them detailed questions about their income, their assets, and their debts. Using this information from your free annual credit report, the counselor will help the consumer to create a budget. Part of their budget will identify a certain amount of money that should be allocated for debt reduction each month.
The consumer will send this amount to the credit counseling service every month. The staff at these nonprofit agencies will deduct a small monthly fee. This is usually around $20 to $50 per month. These funds are used to help run the services. The rest of the money will be divided and sent to the consumer’s creditors. The agency will have determined a set amount to send each creditor every month. They will also try to contact the creditors to see if they will lower the consumer’s interest rates.
These programs are helpful for most consumers because they allow them to consolidate their debts without taking out a consolidation loan. The consumer does not have to worry about keeping track of multiple due dates or multiple creditors. They no longer have to worry about incurring late fees or being subjected to penalty interest rates. They simply have to send the money to the agency at the correct time every month, and the agency will take care of the rest.
Because these agencies are nonprofit, many consumers wonder why they have to pay a monthly fee. Nonprofit does not mean that an entity offers free services. Rather, it means that that entity does not make a profit each year. They can collect money to cover their overhead costs like their electricity, rent, and payroll. Some of their funds will also be used to create newsletters that are sent to consumers. These newsletters offer helpful bits of advice about how to save money and how to get out of debt.
Some other companies try to attract consumers by pretending to be nonprofit counseling services. They are often debt consolidation companies in disguise who take a much larger monthly fee. Settlement companies for instance are completely different than a nonprofit credit counseling service. They also collect a monthly payment from consumers. Instead of sending it to the creditors, they place it in a savings account. Then, they use the savings to pay settlements that have been offered by the creditors.
Consumers who want to consolidate their debts and who want help getting out of debt may turn to nonprofit credit counseling services. These nonprofit entities will help you to work with your creditors. No more harassing phonecalls and visits from creditors. A big relief from being hounded by creditors. Almost like a lawyer working on your behalf to keep creditors away from you. They will also help you to write a schedule that shows you exactly when you will be debt free.