What Are the Dangers of Using Non-Profit Consumer Credit Counseling?

The term "nonprofit" can lull consumers into a false sense of security about a credit counselor, but some nonprofit credit counselors are fronts for fraudsters or companies trying to gouge customers. As long as you do your research and use a reputable counselor, the benefits of using a nonprofit credit counselor can far outweigh the disadvantages.

Fraud

Some credit counselors claim to be nonprofit, but are really just using this status to avoid regulation, according to Nolo, an online legal resource. A nefarious "nonprofit" credit counselor might charge you exorbitant upfront fees or try to sell you services you might not need, such as a secured credit card to rebuild your credit. Thus, you should stick with a registered nonprofit and research customer complaints filed with the Better Business Bureau on the company.

Might Not Help

Despite their best efforts, credit counselors, even ones from a nonprofit organization like the National Foundation for Credit Counseling, might not help in your situation. About one-third of all consumers who go to a NFCC counselor, for example, have problems that are beyond the assistance of counseling, such as people who do not make enough money or diseases like alcoholism and gambling, according to Liz Weston in her 2009 MSN Money Central article "Why Credit Counseling Often Fails."

Cost

Even nonprofit credit counselors might charge a monthly fee to help pay for administrative services when ultimately, you can do most of the services of a credit counselor for free. You can, for instance, call your credit card company, ask for a lower interest rate and receive it most of the time. The money you pay to a counselor could go to paying off debt instead.

Tip

Any legitimate nonprofit credit counselor will register with the Council on Accreditation (COA) or the International Organization for Standardization (ISO). You should also look for counselors who are members of respected agencies, such as the NFCC or Association of Independent Consumer Credit Counseling Agencies. Also, consider options other than counseling. In some cases, bankruptcy is the best way to handle your finances.