Question:

Should I Use a Non-Profit Debt Counseling Firm?

The Wisdom of Using a Non-Profit Debt Counseling Firm

Understanding what non-profit debt counseling firms are and are not is the key to the wisdom of using them as an alternative to bankruptcy. These firms are not

  • Operated by or for the state or federal government to help people;

  • Funded by government or private grants to offer this service;

  • Necessarily experts at all form of debt. If you are
    facing a pre-foreclosure issue regarding your home, do not seek an unsecured credit related firm;

  • Really providing their services for free. While they may not charge you, be aware they are probably generating excellent income.

Many debt/credit counseling firms are

  • Non-profit because they filed appropriate documents with the Internal Revenue Service to qualify as a “503C” entity. They still may
    be earning superior income and giving large monthly, quarterly or annual bonuses to their officers and Board members, then legally ending their tax year with no profit.

  • Earning large fees from creditors. There is no evidence that legitimate credit counseling firms operate with a “creditor prejudice” but this is something you must at least understand.

  • Normally not going to make agreements to
    settle debts at less than full balance payoff for you. Most will attempt to make arrangements for lower payments and/or longer terms, but you will still have to pay off 100% of your outstanding balance.

Remember, this choice is sometimes a wonderful alternative to bankruptcy. However, do not be tempted to agree to a payment plan that provides a short term solution to a long term problem and never make any agreements you know you cannot meet. Do your homework and select only an experienced and reputable firm to work on your behalf.

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