About Credit Counseling
About Credit Counseling
About Credit Counseling
What is credit counseling?
Credit counseling is a program that educates the consumer about their debt and if applicable, signs the consumer up to Debt Management Plan (DMP). The DMP is about negotiating the consumer's interest rates and it lasts for three to five years. The monthly payment is about $25 a month, after a one time set up fee. This program requires the consumer to be still current with their payments as that is the leverage for interest rates adjustment. The program might be better suited for consumers with debt balances of less than $10,000.
If credit counseling is non-profit, then how does it make money?
There are several ways in which credit counseling agencies make money and they come from different sources. The amount they receive to cover various operating expenses vary per source.
Enrollment Fee when consumers enroll in a credit counseling program, there is a one-time set up fee of $50. But it varies per agency; there are some that charge $25-30.
Grants from various foundations and organizations.
The creditors which is the bulk of their income. It comes in the form of a voluntary contribution that can reach as much as 15% of the collection amount (the amount they've collected from the consumer.)
The Debt Management Plan - If credit counseling was not enough to solve the consumer's debt problem, he/she would be encourage to sign up to the debt management program. The DMP asks the consumer to pay a lump sum to the agency each month and from there disburse funds to the creditors.
Why are they non-profit?
It is a status that a lot of states require, if they do not register under "non-profit organization" they would not be permitted to operate legally as a credit counseling agency.
The following are those said states:
Arizona, Georgia, Hawaii, Louisiana, Maine, Mississippi, New Jersey, New Mexico, New York, North Dakota, West Virginia and Wyoming
There other states that have the same requirement plus a limit or a cap at fees that can be charged.
How to find reputable credit counseling agencies and where?
The Better Business Bureau has these guidelines:
-Before you select a credit counseling agency ask for information on the following: :::
-Are the agency services confidential?
-Will they devise a plan tailored to fit your needs?
-Are the counselors certified?
-Are budget and credit education opportunities offered?
-Will your funds be protected? How?
-Is the agency accredited? -Aside from BBB membership (www.bbb.org) the consumer should also check its affiliation with the National Foundation for Credit Counseling http://www.nfcc.org.
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