I just saw another credit couseling commercial on tv, a long, expensive-looking commercial and it made me wonder, who pays for this? These places are non-profit, but surely it’s not a government organization–or is it?
I’m not sure how it works, but from what I understood from a friend who went bankrupt, she had the choice of that or using the credit counsellor. Even when you go bankrupt, you have to pay a certain amount per month to do it. Basically you’re in bankruptcy for a while (a few months), and for that amount of time, you pay monthly to the company who files your bankruptcy.
But with credit counsellors, they basically act as negotiators. They call up your credit card companies etc., and say “Your client is willing to negotiate to pay a certain amount LESS than what they owe. Are you willing to negotiate? Either that or s/he’s filing for bankruptcy.” Most companies would rather get SOME money back than NO money back, so they cooperate.
Either way, your credit report is royally screwed. It’s just “not as bad” as claiming bankruptcy. And if you’re ever asked on a form if you have ever gone bankrupt, you can legitimately say “No”.
Of course, this is coming from a Canadian friend; things probably work differently in the US. And I’m certainly no professional in the matter. But that’s how I understood it.
The credit counseling services that advertise on TV are indeed non-profits, which are funded by the big creditors (banks.) They support the counseling services because their job is to organize your debt, and negotiate payment schedules to get you back on track. This may end up actually saving you money, but the creditors like it because it means they’ll be getting something instead of delinquent accounts or a bankruptcy.
And in the case of one of the biggest “credit couselors,” they ae being sued by the federal government for fraud:
Note that so-called “non-profit” services are many, many times a complete scam. They take your money and don’t pay the creditors. See the above AmeriDebt stuff.
“Non-profit” does NOT mean:
- They are legit.
- They are charities.