You have probably seen ads that promise consumers debt relief through counseling if they are struggling to pay their credit card bills and mortgages. The people behind those ads may tout that they are working through nonprofit organizations. However, nonprofit organizations can make money on the debt counseling that they provide, and some of them may do so at the expense of people who can least afford to rack up more debts.
Credit Counselors
A credit counselor at a nonprofit organization should help you set up a plan to pay off your bills. Among other things, counselors can contact your creditors to try to get your interest rates reduced and get late fees waived to help you pay debts faster. Counselors can negotiate such deals because creditors often prefer to work through a credit-counseling organization to get debts repaid than to have debts erased in a bankruptcy filing. A counselor also should help you set up a budget to keep you on track with paying off debts. Counselors usually contact clients over several months to find out how well they are managing their spending plans.
Home Loan Advice
People who need advice on getting a home loan or avoiding foreclosure can contact a state housing agency that is sponsored by the U.S. Department of Housing and Urban Development. Such agencies provide free or low-cost advice to clients. According to HUD, foreclosure-prevention counseling is available free of charge through its Housing Counseling Program. Agencies that participate in the program shouldn't charge clients for the service. The agencies are allowed to charge what HUD calls "reasonable and customary fees" for other services, which include home-buying advice and reverse-mortgage counseling.
Assessing Services
The U.S. Federal Trade Commission advises consumers to ask a credit-counseling organization if its counselors are trained in consumer credit, debt management and budgeting. Counselors should examine a client's entire financial situation to help develop a personalized debt-management plan that addresses current financial problems and prevents future ones, according to the FTC. The FTC warns that some organizations have defrauded clients by enrolling them in debt-management plans in which clients deposit their payments with the organization to be forwarded to creditors. In some cases, creditors haven't been paid. If you enroll in a debt-management plan, the FTC recommends checking with your creditors to ensure your bills are being paid.
Considerations
Don't assume that a nonprofit debt counseling organization offers its services free of charge, some do and some don't. Some organizations charge high fees while others urge clients to make voluntary contributions to their organizations, according to the FTC. In either case, clients can end up deeper in debt with an organization that should be alleviating its clients' debt problems.
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