Nonprofit Credit Counseling

Credit Counseling is the process of reviewing a consumer’s personal finances and providing guidance on how to make improvements. A credit counselor will review all your liabilities, assets, income and expenses, then determine what might be the best solution for you.

Let’s use the analogy of car repair. You know you have a problem with your car. So you take it into the shop where they check under the hood. The mechanic finds the problem. Then they offer you the best solution to the problem. And they will usually tell you what will happen if you don’t fix the issue. This is the point where you ask the mechanic, how much does that cost?

Credit Counseling is checking under the hood of your finances. It’s a free service. In some cases, your credit counselor will recommend enrolling onto a Debt Management Program (DMP). In other words, the DMP may be the solution to your financial problems.

What happens in a Debt Management Program?

The benefits of the Debt Management Program are usually lower interest rates and lower payments on your credit cards. Along with expediting your payoff timeframe to less than 5 years.  When you enroll onto the plan, the nonprofit credit counseling agency will negotiate new concessions with your credit card companies. You have the option to make monthly, biweekly or semimonthly payments. Each time you make a full payment, the agency disburses them to your creditors. You continue to get statements from your creditors. These statements reflect the payments being made and show the reduced finance charges. And this is the point where you ask, how much does that cost?

What are the fees for Credit Counseling?

While Debt Management Plans are run by nonprofit organizations, they still have fees. There typically is an enrollment fee up to $99 and a monthly service fee up to $59. Credit Counseling organizations are heavily regulated. States have different guidelines on how fees are calculated and what the maximum amounts are.

What are the negatives of a Debt Management Plan?

Many people feel the biggest downside of a debt management plan is not being able to use the credit cards anymore. All accounts included in your plan will be closed. Many people fear living without the ability to use a credit card in case of an emergency. But rest assured, your credit counselor will create a budget with most emergencies accounted for. Also included in your budget is a plan to build savings.

Furthermore, closing your accounts may affect your credit depending on how close to the credit limit you are. Closing your accounts can be viewed as a positive thing though. This prevents you from getting into any more debt.