Non-Profit Credit Counseling

They are terms we've become familiar with -- "non profit credit counseling" or "non-profit debt consolidation". With mounting debt problems for America's consumers- many scrambling for help, these are terms we're certain to see and hear more often. Non-profit debt relief or non-profit credit counseling, under 501c3 status of the U.S. tax code, are similar to their "for profit" debt relief "cousins" and offer much the same services.

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The truth of the matter is that service fees are now - thanks to new federal regulations - paid ONLY after debt relief benefits have been achieved. No more upfront fees and no more upfront charges for people seeking debt-relief from "non profits" and their "for profits" counterparts -- unless you are getting debt relief via an attorney and had a face-to-face meeting. Regardless of how a credit counseling company is positioned - tax code wise, the over-riding concern for consumers riddled with debt, should be the level of performance offered, the solutions given and how quickly debt will be reduced or paid-down.

An important footnote, and depending on what type of debt-relief company chosen, is that service fees when enlisting the help of non-profit credit counseling agencies - are billed back by the agency to the credit card company - the same companies debt is owed to; the same companies that ultimately benefit when long-standing and overdue debt is paid.

Consumer Credit Counseling - Going For the Gold

When it comes to the world of credit counseling and debt reduction, consumer credit counseling agencies are considered the gold standard. Why? Because the strategies and program, if followed diligently by the consumer, can pay-off unsecured debts, that are part of the program, in full. Ideally, the credit card companies and other unsecured debtors are satisfied, and the consumer has the satisfaction that they have reduced debt in an honorable way, albeit through lower interest rates. While non-profit credit counseling enrollment is is often noted on credit reports, it could have some negative short-term impact as debt gets paid-down on a predictable timetable. However, as debt-level to credit-limit ratio improves - credit scores should, over time, begin to improve -- especially with on-time payments made month after month.

Credit counseling agencies operate on a simple and direct premise: Make the monthly payment affordable, lower the interest rate, have fees waived, have penalties waived, and consolidate un-secured debt. It's a win-win strategy and one that both consumer and credit card companies are embracing more and more.

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Non-Profit Bankruptcy

Bankruptcy, as means to end debt-related problems, is as the economy worsens - growing exponentially. Like their for-profit counterparts, the non-profit moniker is a business and tax-code classification, the 501c3, which among other things, helps those companies support efforts at educating the consumer and potentially lowering, reducing or restricting fees for consumers seeking these types of services. Many non-profit bankruptcy credit counseling agencies are eminently qualified and skilled at bankruptcy advice and providing necessary paperwork. Many score high marks among consumers for levels of professionalism and results delivered. Low-income bankruptcy candidates may even qualify for waivers related to pre-petition fees if low income qualifications can be met.

Debt Settlement Companies

The name says it all, "debt settlement" and that's the bottom line when enlisting this type of service company. Aggressive on behalf of the debtor, debt settlement companies set-out to do the following:

• Encourage struggling debtor to immediately halt credit card payments to incentivize credit-card companies for negotiated settlement more favorable to debtor.
• Leverage above strategy for substantially lower total debt owed.
• Help the debtor with the goal of negotiating for less than the full amount owed with creditors.
• Help provide the consumer in financial distress with a viable alternative to bankruptcy.

While debt settlement companies are often successful in negotiating settlements for clients for less than the full amount owed, it should be noted that initially stopping payments to credit card companies will result in negative credit reporting. Credit scores are affected and lawsuits can and do occur during this period. It's equally important, however, to note that credit card companies understand it's often in their best interest to accept the new terms sought by debt settlement companies. The old adage: "That something is better than nothing" - should a debtor decide to go bankrupt - is a reality credit card companies are keenly aware of.

The bottom line is that more consumers are choosing debt-settlement relief because it's often a preferable route over bankruptcy for some consumers. And it could save a substantial money for the consumer. And, the negative effects to a consumer's credit when using debt-settlement are still less severe and long lasting than bankruptcy. Bankruptcies will appear on a consumers' credit history for 10-years. Regardless of which debt relief option you choose, if any - -it is important to understand that no debt relief solution make debts magically go away. If you are on a debt management program through a credit counselor, you, the consumer are the one responsible for having money available each month to make your one, more manageable debt payment that can be used by the agency to distribute to your creditors. If you are on a settlement program, it is you the consumer who has to save up money each month and set it aside to accumulate a fund that can be later used as a settlement fund to settle with individual credit card companies.

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