Credit counseling is valuable for individuals seeking assistance managing their debt and improving their financial well-being. Two primary credit counseling services exist, for-profit and non-profit credit counseling, which is provided by Non-Profit 501(c)(3) organizations. Understanding the differences between these two options can help consumers make informed decisions about the type of credit counseling that best suits their needs. This blog post will explore the main differences between for-profit and non-profit credit counseling, highlighting the key distinctions between these two agencies.
The first fundamental difference lies in the organizational structure of for-profit and non-profit credit counseling agencies. For-profit credit counseling agencies operate as profit-driven businesses. Their primary objective is to generate revenue and earn profits for their owners or shareholders. These agencies are structured similarly to other commercial enterprises and are driven by the goal of financial success. As such, their services may be influenced by profit-oriented motives, potentially impacting the advice and recommendations provided to clients. The fees charged by for-profit credit counseling agencies can vary, including upfront fees, monthly maintenance fees, and percentage-based fees.
On the other hand, non-profit credit counseling agencies are typically structured as Non-Profit 501(c)(3) organizations. These organizations are established to serve the public interest and operate under specific guidelines set by the Internal Revenue Service (IRS). Non-profit agencies are mission-driven, focusing on providing unbiased, expert guidance to individuals in financial distress. They often strive to offer their services at a minimal cost, with fees typically based on the client’s ability to pay. Some non-profit agencies even provide free counseling services to individuals in need.
Non-Profit Credit Counseling:
Non-Profit credit counseling agencies should charge zero fees for their counseling services. The NFCC (National Foundation for Credit Counseling) certifies non-profit credit counselors and usually recommends that potential clients choose non-profit credit counseling over for-profit counseling.
For-Profit Credit Counseling:
For-Profit credit counseling agencies will always charge fees for their services, and sometimes those fees can cost an arm and a leg. Examples of for-profit credit counseling agencies typically include debt settlement companies, debt relief companies, and companies that offer credit repair services.
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Non-Profit Credit Counseling Can Help With:
The kind of help you can get through non-profit credit counseling agencies can vary. The member agencies of the NFCC, for example, can help you:
- Eliminate late fees and over-limit fees
- Stop collection calls
- Lower your interest rates
- Consolidate bills into a single monthly payment
- Pay off debt faster
- Improve money spending and saving habits
One of the best ways to avoid years of high-interest payments on credit cards and other debts is to take advantage of non-profit credit counseling. A professionally licensed and accredited non-profit credit counseling agency can even help you avoid bankruptcy in some cases. When used correctly, these services are fantastic alternatives for people mired in debt that has taken over their lives.
Some of these not-so-trustworthy agencies are usually registered as for-profits. Non-Profits should never ask for money for a credit counseling session. Non-profit credit counseling should always be free, and if for some reason it’s not, then don’t deal with that company because that’s a big red flag.
It is an intense competition prevailing among these types of agencies. There are many debt relief scams to avoid. To steer clear of them, here are a few warning signs to watch out for as you search for the right non-profit credit counseling agency:
Avoid These Red Flags:
- Reviews – Before you zero in on any credit counseling agency, you should always check whether it is a legitimate company or not. Do this by searching online for reviews and searching for the company’s name in a search engine like Google or Bing. Go through a few reviews of the company and find out whether anyone has been scammed by them. There’s a website called http://www.RipoffReport.com that consumers can use to voice their concerns about a company. Do a quick search and make sure there are no bad reviews for the agency you have in mind.
- Reputation – Check on the reputation of a credit counseling agency through organizations such as the local Better Business Bureau. Talk to such organizations and find out whether there are any complaints about the particular company. After all, no one wants a credit counseling firm that has a number of complaints against them.
- Unreal promises – Avoid claims which sound too good to be true. Someone saying they can help get you out of debt within a matter of a few days or a month is a scammer. Remember, debt is always easier to accumulate; paying it off is a very different thing. You cannot get out of debt overnight; it will take several years.
- Credit history – There are many credit counseling scam agencies that are known to tell their clients that their credit reports will be wiped clean once they pay off their debts. Nothing could be farther from the truth. Bad or negative marks on your credit report will stay on there for a few years (7-10 years). Any derogatory marks like late payments or missed payments will not magically disappear even if the debt is paid off. It is your credit history, and it stays there for that reason.
Signs That An Agency Is Legitimate & Reputable:
If a credit counseling agency has not been in business for at least five years, you might want to pass it up. In any business, start-ups will need to struggle, and they might have some failures before hitting a smooth business stride. By the five-year mark, a credit counseling agency should have a definite business plan and will have developed a reputation in the industry. This is about the time in a company’s history when you can discern whether that reputation is good or bad. The longer the agency has been around, the better. That means they are an established and trusted agency to be doing business for such a long time.
A credit counseling agency needs accreditation to be an agency worth your time. A trustworthy agency can prove that it has been accredited by the Council on Accreditation (COA) or the International Standards Organization (ISO). The accreditation should be current and not lapsed. These agencies enforce strict standards continuously to ensure that consumers are not defrauded by their credit counselors. They should also be members of the National Foundation for Credit Counseling (NFCC) and hold a high rating with the Better Business Bureau (BBB).
Good references –
The degree of notoriety a credit counseling agency has acquired for being disreputable depends on how long the company has been fraudulent and just how fraudulent it has been. Companies can get away with scams for years – just look at Enron.
Call your Better Business Bureau and your state’s Attorney General’s office to learn more about a credit counseling service you’re considering. You will find out whether or not that credit counseling service has engaged in shady dealings. Check out online reviews from past clients as well. Look for reviews from multiple online resources, not just those posted by the agency. You can even ask the agency if they can give you any professional references you might be able to contact and ask them how their experience with the said agency was.
They offer phone, online, and in-person counseling –
A reputable non-profit credit counseling agency will offer services at their office locations, over the telephone, and online. Many agencies provide in-person counseling if you seek a more hands-on approach. A list of local non-profit credit counseling agencies can be found at universities, housing authorities, military bases, credit unions, etc. You can always check out the NFCC to find an agency near you. However, with technology growing rapidly every single day, online counseling is a prevalent method and can be completed from the privacy and comfort of your own home.
Questions are always welcome –
A credit counseling agency will want to be asked questions and expect it. People should want to know what services a non-profit credit counseling agency could offer. Do they offer savings and debt management classes? Do they offer budget counseling services? Do they offer bankruptcy help if you are thinking about that? If an agency is contacted, and they don’t ask about a person’s financial situation BEFORE talking about debt management, this should be considered another red flag. Here’s a list by the Federal Trade Commission (FTC) of some great questions to ask: https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor
Fees and costs –
One of the key differences between for-profit and non-profit credit counseling is how they charge fees and costs for their services. For-profit credit counseling agencies typically charge clients fees for the services they provide. These fees vary widely, including upfront monthly maintenance and percentage-based fees. The primary goal of for-profit agencies is to generate revenue and earn profits for their owners or shareholders, and their fee structures reflect this profit-oriented mindset.
On the other hand, non-profit credit counseling agencies strive to provide their services for free or at a minimal cost. They often charge nominal fees based on the client’s ability to pay. In some cases, non-profit agencies may even offer free counseling services to needy individuals. Non-profit agencies focus on assisting individuals in financial distress and promoting their long-term financial stability rather than generating profits.
The difference in fee structures reflects the underlying motivations and objectives of each type of credit counseling. For-profit agencies aim to maximize their revenue and profitability. In contrast, non-profit agencies prioritize affordability and accessibility, ensuring that needy individuals can access credit counseling services without facing excessive financial burdens.
Discuss all of your creditors –
The agency will be able to contact all of the creditors on behalf of their clients and discuss a reduced payment plan with them. It’s also important to ask if the non-profit credit counseling agency is able to get creditors to provide lower interest rates or eliminate fees. Ask if they are able to waive finance charges as well as any late fees. An agency will tell a person if they’ll have to make any payments BEFORE the creditors accept their proposal. A proposal is just a written agreement between the debtor and the creditor as to what the creditor will accept as payment each month and other terms like the payment date.
If you have any special types of debt or specific lenders you are dealing with, which may be the case with owners of their businesses, see whether the credit counseling service has specific experience with this lender and what type of relationship they have with them. Many large lenders will sell their old debt to companies that buy the rights to your debt for fractions of a dollar. These debt-buying agencies are willing to accept less than the face value of the debt as it represents a gain on their end. Having a credit counseling service that is experienced in dealing with the debt-buying agency that holds your debt can provide you with a real advantage.
Advantages of free credit counseling –
When a person signs on for the services of a non-profit credit counseling agency, they will be able to consolidate all of their unsecured credit card debt into a single monthly payment that gets paid to the counseling agency. They will no longer have to make multiple payments to multiple creditors. It will be just one payment a month. The credit counseling agency will disburse that money to all of their creditors on the debt management plan. The total monthly payment will usually be reduced. Many clients pay less each month than they would on their own.
Success stories of that agency –
Many consumers have been helped by debt management programs offered by non-profit credit counseling agencies. This can happen when credit card fees are waived, interest rates are lowered, and debt is properly handled with creditors. Millions of people who did not see a way out of debt are provided with a clear and understandable solution. You will be given an estimated date of when all your debts are to be paid off.
Find A Reputable Non-Profit Agency:
You should not settle on the first non-profit agency you see without doing some homework on them and their reputation. You should be willing to contact more than one agency and ask each of them to send free information explaining their services and any associated fees. If an agency is not willing to do this, it should be considered a red flag. Once the list has been narrowed down to one or two, the next step is to research each one with the state’s Attorney General’s office and the Better Business Bureau. Also, you should check with local consumer protection agencies and also with the National Foundation for Credit Counseling (NFCC) on their status and membership.
The best way to avoid being scammed is to choose a reputable non-profit credit counseling agency. Research credit counseling companies in your area before you choose one. Asking someone who has already been in such a position is a good way to start the process.
While for-profit services prefer customers with relatively good credit, as they expect to get the full repayment, not-for-profit services are willing to take the risk of helping people with poor credit. However, this situation creates a new problem because scam companies have been quick to exploit the attractiveness of free services by proclaiming themselves as ones. If you plan to employ a not-for-profit agency, remember to check their reputation and accreditation before you sign any paperwork.
Whatever your current financial situation may be, they will provide you with a solution that gives you peace of mind. Whether you sign up for a debt management plan or decide to tackle your debt all on your own, if you don’t want to end up with even more debt, be cautious with any company that claims to get you out of debt in as little as a few months.
There are, of course, a lot of different credit counseling service companies out there and selecting the right one can be challenging. To sort through and limit the number that you are planning on considering it is essential to summarize the key factors that make up your debt, income, expenses, and organize it into a chart. Doing so will allow you, and any professional credit counseling company to understand your current financial position and the depth of the challenge you are facing. The goal of this is to find a credit counseling service that is the right size for your needs by offering you personalized care and attention, but at a cost that is beneficial to your needs.
Steps To Take When You Find Them:
First, if a credit counseling services specialist will not meet with you during the initial consultation for a minimum of one hour, keep looking. Credit counseling is not one-size fits all answer. Someone facing debt problems in California is going to face a much different set of problems than someone from Pennsylvania. Your certified credit counselor has to be able to take the time to figure out your particular problems and be familiar with the cost of living in your area in order to consider those when helping you develop a budget during your debt management process.
Next, there’s no reason why any of the credit counseling services in business today should be charging more than $100 to set you up in one of their debt management programs. They’re looking to make their money upfront, and then giving your situation scant attention beyond the initial contacts and workups. Look for companies that charge no more than a one-time-fee of $50 for their creditor negotiation and related services. Chances are they’re looking to legitimately build longer-term relationships with their clients.
Finally, avoid any of the credit counseling services you encounter that want to take your money without a written contract that specifically details everything they will do on your behalf. There are unethical credit counseling companies out there that prey on vulnerable people who already feel confused and scared about their financial problems. Keep your mind focused on what’s at stake and choose carefully. Always get the full details in writing for your own protection.
Focus and Motivation:
The primary motivation behind for-profit and non-profit credit counseling differs considerably. For profit credit counseling agencies are driven by profit and financial success. Their primary objective is to generate revenue and earn profits for their stakeholders. As a result, their services may be influenced by a profit-oriented mindset. Conversely, non-profit credit counseling agencies focus on public service and the mission of assisting individuals in financial distress. They aim to provide unbiased, expert guidance to help clients regain control of their finances and achieve long-term financial stability.
Transparency and Accountability:
Non-profit credit counseling agencies are subject to stricter regulations and transparency requirements due to their non-profit status. They are accountable to the IRS and must adhere to specific guidelines to maintain their tax-exempt status. This accountability fosters transparency in their operations, including financial reporting and disclosure requirements. While subject to relevant regulations, for-profit credit counseling agencies may have more flexibility in their operations and disclosure practices, which may vary from one organization to another.
Non-profit credit counseling agencies often have a broader community impact than their for-profit counterparts. Non-profit organizations are committed to serving the public interest and improving financial literacy within the community. They may offer educational programs, workshops, and outreach initiatives to promote financial well-being. In contrast, for-profit credit counseling agencies primarily focus on providing services to individual clients to generate profits for their shareholders.
Choosing the right type of credit counseling service is crucial for individuals seeking financial guidance and debt management support. Understanding the key differences between for-profit and non-profit credit counseling can help individuals make informed decisions. While for-profit credit counseling agencies operate with profit as their primary motive, non-profit credit counseling agencies, as Non-Profit 501(c)(3) organizations, prioritize public service and have a community-focused approach. By considering the organizational structure, fees, focus, transparency, and community impact, individuals can choose the credit counseling service that aligns best with their goals and values.
AdvantageCCS is a reputable non-profit credit counseling agency licensed and approved to do business in these states. We are proud members of the National Foundation for Credit Counseling (NFCC), long-time standing members of The Council on Accreditation (COA), and we have an A+ Rating with the Better Business Bureau. We’ve been helping people with their debt since 1968, and we can help you too! Give us a call today at 1-866-699-2227 or visit us online at https://www.advantageccs.org for free non-profit credit counseling.