Non-profit debt relief companies have become an increasingly popular option in recent years, due to the economic downturn and many people’s desire to rework their budgets in order to reduce their debts. One of the best services provided by non-profit debt relief agencies is that for a nominal fee, usually around $30 to $75, they will offer you a budget counseling session where they will review your income and expenses, and offer unbiased professional advice about how to better allocate your financial resources. They are also an important member of their respective communities in that many are local and offer free education and seminars to the general public about budgeting, credit, and debt topics.
Another useful service for a very narrow subset of consumers provided by credit counselors are “debt management plans” (DMPs). In these plans, credit counseling agencies make proposals to your creditors to reduce your interest rates and fees over the course of four to five years to help you pay off your debt on more affordable payment terms. While these plans are beneficial for some consumers, the vast majority (around 70%) fail to ever complete them because the payment terms are difficult to meet.
Despite these poor statistics, many so-called non-profits continue to urge consumers to seek out this option. The Federal Reserve Board study, “Whither Credit Counseling,” reports that roughly 35% of the people who receive budget counseling end up enrolling in a debt management plan. This is compared to the less than 7% who have their budget reviewed and are advised to file bankruptcy even those 50% of the people who do enroll in a DMP end up doing this within six months of enrolling in their plan!
Many have argued that much of the failures of credit counseling stems from their unique dependence on the credit card companies for funding. Since these agencies are mostly non-profits, they depend on kick-backs from credit card companies based on the monthly payments they collect from clients enrolled in debt management plans. This leaves them in a precarious position where their survival as an organization largely depends on them giving people bad advice. That is, to enroll in a debt management plan instead of filing bankruptcy or enrolling in a no-up front fee debt settlement plan, such as the one offered by Franklin Debt Relief.
Certainly a debt management plan should be considered by anyone considering a debt relief program, but it is important for consumers to understand that the advice offered by non-profits cannot be more trusted than offered by anyone else. Ultimately, it is your responsibility to do your homework on your options, your budget, and the company you choose to enroll with.
To speak to a consultant at Franklin Debt Relief, please call 877-274-1260 today!