Nonprofit Financial Counseling

Financial counseling companies often advertise that they are nonprofit, but the Federal Trade Commission warns that this status does not necessarily mean they are legitimate or provide free or low-cost services. Some even falsely claim to be nonprofits. True nonprofit status is one of the signs of a potentially good credit counseling firm.

Definition

Financial counseling companies help people who cannot manage their finances. There is no set debt amount to be eligible for nonprofit counseling, according to Bankrate.com, as some people might feel overwhelmed by $50,000 in debt while others have trouble handling only $3,000 in owed bills. The range of services runs from providing education, financial management suggestions and budgeting help, to negotiation with lenders and the administration of structured debt management plans. People who seek counseling generally cannot afford high fees because they are already in financial trouble, so many counseling firms are nonprofit and provide free or low-cost help.

Checking Status

Check the nonprofit status of a company with your state's charity officials. The National Association of State Charity Officials can give you contact information. Ask the firm if it is licensed to provide services in your state. Find out if it belongs to the National Foundation for Credit Counseling. Confirm licensing and association membership with the appropriate government agency and professional group.

Considerations

Confirmed nonprofit status is a positive sign, but legitimate financial counseling companies have several other characteristics. Good firms charge low or no fees and disclose all costs up front before you start to work with them. Ask about their main funding source, which should be creditor contributions, according to the BBB. Good firms should offer a wide range of financial options, based on their clients' personal situations, rather than pushing everyone toward a debt management plan.

Warning

Nonprofit financial counseling companies sometimes go out of business while clients are still in the midst of debt management plans, as arrangements can last up to five years. Immediately stop any automatic bank withdrawals that were going to the counseling firm if you learn it has shut down. Contact all your creditors as soon as possible to head off skipped payments, and ask if they will let you continue the same repayment schedule on your own. Staying on the plan maintains your progress in cleaning up your credit and reducing your debt within the set time frame.