Why Are Debt Counseling Services Non-Profit?

Debt counseling services have become proven options for those struggling with credit card debt. The vast majority of these agencies are nonprofit, and that's a good thing. The nonprofit nature of debt counseling services helps to protect customers in a variety of ways.

Debt Counseling Services

Debt counseling services, also known as credit counselors, generally act as middlemen between customers and their creditors. By setting up customers on debt management programs, credit counselors can help save its clients thousands in interest fees while simultaneously helping them build lengthy histories of on-time payments. These programs enable customers to get out of debt within five years, at which time they are ready to re-establish their credit.

Consumer Assurance

The most obvious reason why a credit counselor would register as a nonprofit agency is to show customers that they're not out to make money. It's a good faith measure that shows people that their money is safe with the agency and that the agency will do what it claims. Since the customer gives thousands of dollars to the agency over the life of the debt management program, this show of legitimacy is important to the agency-client relationship.

Debt Counseling Ownership

You may be surprised to learn that many debt counseling services are actually owned by the credit card companies. This fact isn't advertised in most cases because it may indicate a conflict of interest, but this is another instance where an agency's nonprofit status is crucial. This shows that even though the agency may be bankrolled by the credit card industry, it's not making excessive profits under the guise of helping you. The reality is that the credit card companies have a great interest in these companies because the success of credit counseling means your credit cards get paid, as opposed to being settled or charged off.

Use of Caution

The Federal Trade Commission warns consumers that just because a credit counselor claims it's a nonprofit doesn't mean it's legitimate by default. It's a nice thing for an agency to brag about, but the group must have additional factors to show its credibility. For instance, a long history of helping consumers is a plus, as are reasonable fees and a willingness to work with you to create a plan that works for you. Debt management program fees cannot exceed $50 per month, and these fees can be waived in instances of severe economic hardship. In short, be wary of the company's practices as a whole and not just its claim of being a nonprofit agency.