What do all these "consumer credit" nonprofits get out of it?

Years ago, I had a friend who worked for a company called (I believe) Consumer Credit Counseling. She explained that this company was a not-for-profit organization that helped people deal with excessive debt, primarily through counseling (i.e., teaching the people better behaviors) and working with the creditors to reduce the amount owed (on the theory that a creditor would rather get a percentage of what is owed them than get nothing at all if the creditor declares bankruptcy).

At the time, I assumed this was a government-funded agency, and I only ever heard of the one company doing it. Now, however, I am seeing more and more commercials on TV for competing “non profit” companies that offer the same services. It’s obvious they are not all government sponsored (and I now doubt that my friend’s company was either), and I’m starting to wonder what these companies get out of the deal? I assume that “not for profit” means they don’t charge for their services, but maybe it just means they can only charge enough to cover their expenses? And if they do charge, are they charging the consumer or the credit card companies?

Just wondering…


From what I understand, the company with which the consumer deals is non-profit. The company that actually brokers a deal with the creditors, however, is very much indeed a for-profit company.

They are funded by creditors. The non-profits negotiate a deal with the creditors to begin paying off your debt, and teach you about proper debt management. This way, the creditors have some chance of getting some money, instead of the person declaring bankruptcy or simply defaulting.

Companies like Consumer Credit Counseling and AmeriDebt do seem to “subcontract” most – if not all – their negotiation work.

The consumer pays a fee EACH month for every account handled by the credit negoiators – usually around $5-10 per account per month. Make no mistake – the consumer pays extra for the negotiation services. Presumable, the consumer could not easily get the interest rate easements and other benefits without the negotiators, so that’s the service for which you are paying.

As a matter of fact, I just finished using Consumer Credit Counseling service to help with my debt.

They do charge the consumer each month for the service. It was about ten bucks a month. The benefit is not that they’ll settle a percentage. It’s that they can usually convince your creditors to lower your percentage rate, or halt late charges and over-limit fees while you’re on the program. And, you simply pay the counseling service a single amount each month on automatic debit.

It does take a lot of hassle out of getting yourself out of debt. I am glad I went with them for the time that I did, though I am equally glad that I’m now done with it.

Keep in mind that you shouldn’t run up any new debts while you’re on their program. That worked fine for me.

Honestly, I don’t understand the uproar about these outfits. People say they will ruin your credit. That’s nonsense. I genuinely got a lot of benefit from it.

This is somewhat of a hijack, but …

I was considering going through AmeriDebt for some credit negotiation assistance a few years ago. Around the same time, I went to speak to a mortgage banker to see if we could get prequalified for a home loan.

The mortgage banker told me that as far as his company was concerned, having gone through credit settlement was as bad a demerit as having gone through bankruptcy.

However, I’ve since learned that not all lenders/potential creditors are like this. It really just depends on what kind of credit you are trying to obtain (home loan, auto loan, furniture store extended payments, etc.) and on the individual policies of each given company.

“Not for profit” doesn’t mean that they don’t charge.

My sister, a realtor, tells me the same thing.

Well, color me silly, but I would think actually trying to improve a poor financial situation would qualify as a good thing.

And another thing: My understanding is that the notation “managed by credit counseling service” that appears on your credit report can be made to go away once you’re through with the service. Not sure if this is entirely correct yet, though.

There have been a lot of such companies springing up in recent years. One way the more fly-by-night companies make money is to take your payments and not send them on to the creditors. When complaints start to come in, disappear.

So the whole business is getting a progressively worse reputation.

See the second item from Clark Howard’s web site.


From the site that ftg cited above:

Verrrrrry inturresting! This pretty much confirms what I suspected, i.e., that at least some of these companies that have been advertising on TV lately are not as altruistic as they would have you believe. I’m willing to believe my friend when she tells me that the company she worked for really was organized soslely to help people, but I just can’t believe so many companies are competing (not to mention spending tons of money on advertising) just out of the goodness of their corporate hearts.


Good Grief!

Scores drive ALL mortgage processing. Paying off debts ALWAYS increases the credit score.

The remark ‘managed by credit counseling’ is a NUETRAL remark in scoring models. The payment history and balance have the real weight here.

Yes, these agencies were propped up by lenders to steer defaults into paying.

Is it better to go through credit counseling? Well, are you the type that would default and have even crappier payment histories if no one helped you? If so, then BINGO, you are ahead of the game to pay down your debts and avoid bankruptcy, defaults, written off acc’ts, extreme slow pay, repo and collections.

If credit counseling helps you avoid any of those, you are ahead score-wise.


Sorry, just couldn’t help but laugh at that.

My university is a not-for-profit, tax-exempt organization, and it charges $27,000 a year for its services.