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Debt Management & Counseling
Many companies advertise that they are "non-profit," but they are actually non-profit only in name. How can you decide which are companies are legitimate? What is the division between non-profit and for-profit debt management and when should you use one over the other? Where does bankruptcy fit into all of this?
Background – Terms Definitions
Credit Repair Clinics - Most consumer groups for debt counseling issues advise avoiding credit repair clinics. Many of these clinics are actually illegal. Even for the legal operations, the fact is that none of them can do anything for you that you can't do for yourself, other than charge you anywhere from $100 to $3,000 for unwarranted services.
Debt Management - an umbrella term for a collection of debt-environment activities and functions such as debt reduction, consolidation, negotiation, settlement, bankruptcy, credit repair clinics, and assistance with credit reports. When choosing a debt counseling agency, find out which of these functions they perform.
Understanding Credit Reports - Credit reports can be difficult to understand, but if you carefully make use of materials sent with your report, you can get through it. Proofing your own credit report is bly advised, but to do so you are going to have to comprehend it. Take time to study it thoroughly, call the credit bureau’s help lines, and do Internet searches for sites that provide assistance and advice.
Frequently Asked Questions
Is a debt counseling service a negative report on your credit? Debt counseling companies do not usually report to the credit bureaus, however creditors may occasionally consider use of such a service, which does not help your report. However, not using a debt counseling service and filing bankruptcy or multiple late payments is much worse.
When is bankruptcy the best course of action? In theory, bankruptcy should be considered only by people who are absolutely unable to repay incurred debts. At times like these the individuals should ask themselves, "Is this a permanent or temporary issue?" Although both scenarios can be devastating, permanent disability may be far different than job loss. One may require bankruptcy and the other negotiating with creditors.
If a company is listed and filed as non-profit, isn't that enough? All Non-Profit organizations must have a Federal 501-C3 non-profit status form on file with the government. However a consumer should not use this filing as the exclusive qualification to act in accordance with a true "non-profit" in this industry. Many so called "non-profit" debt companies promote this status to the uninformed consumer, but are essentially “for profit” corporations.
What should I avoid in choosing a "non-profit" company? Many so called non-profit agencies, along with a high per-debt monthly fee, also charge a one-time fee equal to a first month's payment on all considered debts. The total of the debts may be inflated because some agents include unwarranted bills. Not only is it inflated, but they advertise that this fee is a "retainer" paid back to the client when the program is successfully completed. The fact is, these companies capitalize on the fact that only a small percentage of those who go to these groups ever finish their program. Therefore these managers keep the "retainer"... a very lucrative practice for a "non-profit" business.
Which payments or creditors should not be included? Not all debts should be listed because many are non-negotiable. For example, student loans, payments to I.R.S., selected Credit Union loans, certain department store accounts, foreign creditors, and many others simply cannot be negotiated, and debt counselors should know this. A suspect agency wants non-negotiable items included because it inflates the retainer or first payment (which a true non-profit would avoid charging to begin with). At a later date the agency informs the client that the creditor has “changed policy” and the debt cannot be negotiated. The agency then keeps the “retainer” claming they are not responsible for a "change of the creditor's policy.”
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