Debt can be overwhelming, but help is available. The key is finding the right help, which is why you should know the difference between a nonprofit credit counselor and a debt relief company.

What’s the distinction?

  • Reputable nonprofit credit counseling agencies may offer credit counselors who are trained and certified in consumer credit, debt management and other money matters.
  • In contrast, debt relief companies typically are in business mainly to make a profit, rather than to help consumers better manage their financial lives.

How Can a Nonprofit Credit Counselor Help You?

One of the best places to get help dealing with debt is a nonprofit credit counseling agency. “There are different options and solutions available for people, depending on their unique situation,” says Melinda Opperman, chief relationship officer at, a nonprofit credit counseling agency.

Here are some of the benefits to choosing a nonprofit credit counselor for help handling debt:

  • You can usually get free no-strings-attached help. Many nonprofit credit counseling agencies offer their counseling services free of charge. You may be charged fees as it relates to debt management programs (covered in more detail below).
  • Counselors are qualified. Nonprofit credit counselors typically go through intensive training and must pass stringent tests to get certified to counsel consumers on money matters such as credit card debt, mortgages, student loans and bankruptcy.
  • Credit counseling can address the root cause. A credit counselor will work with you and help you figure out why you got into debt and how to develop healthy financial habits. “Everything we talk about with a consumer is always paired with education,” Opperman says. “That’s the big value of our coaching.”
  • Debt management fees are low. Many credit counseling agencies offer debt management plans, or DMPs, which can be a good solution for some cardmembers. If you do choose to sign up for a DMP, there may be a small initial setup fee up to $75 plus a low monthly fee ranging from $25-$55 based on your financial situation and how much you can afford to pay.

How Do Nonprofit Credit Counselors Work?

Most nonprofit credit counseling agencies offer counseling online, by phone or in person.

The counselor will review your overall financial picture, including income, bills, debt and other obligations such as child support. Taking this information into account, the counselor will help you decide on a plan to deal with your debt. The counselor also can help you create a realistic household budget that includes debt repayment.

If you qualify for a DMP, the value is in your hard-earned money going toward paying down your debt in a responsible manner. Using a DMP, your payment is going toward your debt and continuously chipping away at the balance, rather than toward a percentage cut a consolidator may take from you.

A DMP does not come without some credit history impacts, however, but they are preferable to a situation in which you don’t repay your debt and experience a charge-off. When you enroll in a DMP, you accounts are revoked, which means they are permanently closed. This could be viewed as a negative event by lenders, because the creditor closed them upon agreement to using a DMP. On the other hand, the benefit to a DMP is that you’re less likely to experience a charge-off of your accounts since you are making on-time, acceptable payments to your creditors. The same cannot be said for debt consolidators, in which the consolidator may allow the account to charge-off before reaching out to creditors on your behalf.

However, you need to do some legwork to make sure a credit counseling organization is legitimate, according to the U.S. Federal Trade Commission. It’s important to ask questions about credit counseling services to choose a reputable agency. A credit counseling agency also should be a member of a national organization, such as the National Foundation for Credit Counseling (NFCC).

What You Should Know About Debt Relief Companies

A debt relief company is often a for-profit business that charges consumers for services related to debt resolution. These companies go by many names—including debt relief company, debt settlement company, debt consolidation company or debt negotiation service, among others—and will vary in terms of what they will claim to be able to achieve.

These companies may have you open up an escrow account with them, into which you make payments each month. Ultimately, you are just paying into that escrow account and not making payments to your credit cards or other loans. Once you’ve paid a certain amount into the account — that amount is determined by the consolidator — one of their representatives will reach out to your creditors to make settlement offers. There is no guarantee those offers will be accepted by your creditors, so this can be a risky option that could leave you in a difficult financial situation. If a certain amount of time goes by, eventually the accounts will be charged off by the creditors and lenders, which is considered a very negative event in your credit history. You can find a hypothetical example of this later in the article.

Keep in mind that the consolidation offered by a debt relief company is different from consolidating your debt through a financial product such as a personal loan, credit card balance transfer, or home equity loan from your bank or credit union, which can be a good option for some consumers. However, you would need to have a strong enough credit score and credit history to be approved for this type of option.

Common slogans used by debt relief companies may include language like: “Slash your debt by 60 percent!” or “Drowning in debt? We can help you become debt free,” and “Settle your debt for pennies on the dollar!”

While these ads may sound tempting, there are some big risks you should consider before signing on the dotted line:

  • Can you really trust a debt relief company? A debt relief company typically is selling a particular service, rather than trying to find the solution that’s right for your situation.
  • The consolidator takes over power of attorney of your account. When you sign on the dotted line, you’re usually transferring the power of attorney to the consolidator, which means they can make the decisions on your account going forward.
  • Debt relief companies may charge steep fees. Most debt relief companies are out mainly to make a profit, according to a primer on debt relief companies from the Consumer Financial Protection Bureau.
  • You can ruin your credit. Debt settlement typically takes many months and can result in late payments, charge offs and other negatives that can adversely affect your credit report. Or, as Opperman says, “Your credit score will tank.”
  • Results are never guaranteed. Some companies make big promises, but remember that they can’t eliminate your debt. Also, a debt relief company has no way of knowing the results in advance. For example, some creditors have a policy of not negotiating with debt settlement companies, says Peter Klipa, vice president of creditor relations for the NFCC.

“Debt settlement companies are looking to strike a deal with creditors,” Klipa says. However, customers don’t get any financial education in the process. This means that debt relief customers “are very likely to head back into financial problems again,” he says.

Weighing Your Debt Relief Options

Still not sure where to turn? Perhaps a real example will be useful: Say a consumer, Sally Smith, owes $10,000 across five credit cards. She goes to a debt settlement company that charges a fee of 25 percent of the total amount of debt settled. If the debt settlement company is able to get her creditors to settle for 50 percent of what Sally owes, she could end up having to come up with $5,000 quickly to pay her creditors, on top of paying $1,250 to the debt settlement company, Klipa says.

There’s also risk involved in the way the process works. The debt settlement company tells consumer Sally to stop paying her credit card bills, so as each month goes by, the accounts become further delinquent and the creditors are (they hope) more willing to settle. In the meantime, her debt may balloon, as late fees and interest charges continue to accrue on the balance and her credit gets damaged.

In contrast, if Sally had signed up for a DMP through a credit counseling agency, she might have paid a total of $300 or $400 in administration fees to the credit counseling agency, Klipa says. The agency may have been able to negotiate lower interest rates and fee waivers with her creditors, resulting in one manageable monthly payment. Plus, some creditors, including Discover, may be able to offer payment programs that reduce interest and therefore create an opportunity for the customer to better manage their payments.

The next time you see a flashy ad from a debt settlement company, think about this, Klipa says: “A lot of that advertising is funded by the fees paid by the customers.”

Nonprofit Credit Counseling Agency

Debt Relief Company

Operates as a nonprofit organization with a mission of helping consumers find debt solutions that fit their individual situations.  Usually operates as a for-profit company with a goal of selling a particular product or service, whether or not it is right for a consumer.

Services are typically free or low cost and, if there is a fee, it’s adjusted based on the consumer’s ability to pay.

Customers often pay high costs in the form of interest rates, fees or charges based on a percentage of the debt settled.
Nonprofit credit counselors typically receive extensive training and must pass tests to prove they are qualified to work with consumers. Employees may not have any particular training or education in consumer credit or debt.
Offers financial education to consumers to help them understand how they got into debt and how to avoid debt in the future. Focuses on addressing the consumer’s current debt situation, rather than preventing future financial problems.
Focuses on helping the consumer to minimize damage to their credit and to begin building better credit for the future. Remember, their plans do come with some impact to your credit history but can be more beneficial to you than a relationship with a consolidator. May instruct the customer to take actions, such as stopping payment of bills, that can lead to credit damage that lasts for years. 


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