Nonprofit Credit Counseling: Free Credit-Aid For Those In Need

If you’re reading this page right now, then it’s probably safe to say that you’re in debt and you’re looking for a way to get out of debt without having to pay an arm and a leg for professional credit and debt counseling services. If so, you’re not alone. 2020 saw the biggest jump in consumer debt in the history of our country, which was mostly due to the global pandemic and the rough economy.

In this article, we’re going to discuss nonprofit credit counseling, explain what makes it different from professional credit counseling, and how the process works. Ultimately, if you’re able to find a reputable nonprofit credit counseling agency, then they can be just as good (if not better than) as a professional paid agency!

What Is Nonprofit Credit Counseling?

A nonprofit credit counseling agency is a nonprofit organization that is committed to helping consumers repair their credit scores, settle debts, and negotiate repayment plans with creditors. When you first meet with a counselor, they’ll start by analyzing your debts, taking your income and expenses into account, and getting a full picture of your financial standing.

Then, they’ll work with you individually to create a plan designed to help you get your debts taken care of and get your credit back on track so that you can resume a healthy financial life.

How Do Nonprofit Credit Counselors Get Paid?

As we mentioned, these agencies are classified as nonprofit agencies. While the agents themselves are paid through the nonprofit, the organization itself takes no money from its clients. Instead, they can survive entirely from grants given out by the local government and large credit agencies.

It benefits the government to have consumers with strong financial health to contribute to the economy. It helps credit agencies rehabilitate those with low credit so that they can once again become reliable customers. The critical part to remember, though, is that you will never have to pay a dime to the counseling agency (other than money spent towards past debts).

Who Should Consider Nonprofit Credit Counseling?

If you’re in a lower income bracket and you can’t afford professional credit counseling, then scheduling a visit with a nonprofit counseling agency is a great way to start fixing your credit. Even if you do have money and you’re just a frugal individual, nonprofit credit counseling can provide you with clear, low-cost solutions to help repair your credit and get out of debt.

Nonprofit Credit Counseling vs. Professional Credit Counseling

At this point, you may be thinking, “this all sounds a little bit too good to be true…

However, we assure you that there are no hidden catches involved in free, nonprofit credit counseling. The only difference between nonprofit agencies and paid agencies is that the free agencies can often take a little bit longer as they are often juggling more clients.

Paid credit counselors have the luxury of being able to limit the number of clients they deal with and can spend more time working on your credit profile. So, if you’re in a rush, then it might be a better idea to work with a paid agency. However, if you’re patient, then nonprofit agencies can produce the same results.

The Nonprofit Credit Counseling Process

Are you wondering how the nonprofit credit counseling process works? Overall, it’s fairly simple and straightforward. Here’s how the process usually goes from start to finish.

Step One: Debt and Credit Analysis

The first thing that your agent will do is perform an in-depth analysis of your credit report. They’ll take a look at all of your paid, unpaid, current, and default loan accounts. Then, they’ll look at your FICO score provided by each of the three bureaus (Experian, Equifax, and TransUnion).

The information that they glean from this process will help them decide the quickest course of action to fix your credit.

Step Two: Debt Management And Settlement Programs

When you’re trying to repair your credit, the most important thing is to take care of your old debts. Since your credit payment history accounts for 35% of your total FICO score, it can be hard to boost your credit score if your report is suffering from unpaid bills and debts that have gone into collections.

In regards to unpaid debts, you’ll usually have two options:

  • Debt Management Program (DMP)
  • Debt Settlement Program (DSP)

Debt management programs work with your creditors to cease interest and late penalties from accruing while allowing you to make affordable monthly payments on your debt and get your account current.

Debt settlement programs involve making a settlement offer on the account. This means that you’ll usually only pay a portion of the total debt. While this can save you money, it can also lower your credit score as settlements are a derogatory mark on your credit.

Step Three: Credit-Building Advice

Once you’ve handled your old debts and default accounts, you may have the option to continue working with the nonprofit credit agency to help you build your credit. They may offer you advice on how to get approved for credit cards, how to maintain healthy spending habits, and the best steps you can take to quickly increase your credit score.

Does It Affect Your Credit Score?

If done correctly, nonprofit credit counseling should affect your score in a positive way. As you begin paying off old debts and building a healthy credit profile, you’ll see your credit score slowly but steadily increasing.

How Long Does Nonprofit Credit Counseling Take To Work?

This all depends on how deep in the hole you are and how quickly you’re able to pay off old debts. If you just owe a relatively small sum ($5,000 to $10,000), then this can usually be accomplished in a shorter amount of time. However, if you owe large sums of money (old student loans, medical bills, car loans, etc.), then it could take several years to bring your accounts current.

How To Find A Reliable Nonprofit Credit Counseling Agency

To find the best nonprofit credit counseling agency, make sure that you look for an agency that is sponsored or involved with the National Foundation for Credit Counseling or the Financial Counseling Association of America. These two institutions have standards for credit counseling that their participating agencies must maintain in order to give consumers more trust.