Why Are There So Many Non-Profit Debt Relief Companies?

Anyone who has researched their debt relief alternatives thoroughly will come across a wide array of non-profit credit counseling agencies. Since the inception of credit counseling in the 1950s, non-profits have dominated the industry. Is it just coincidence? Not at all. There are a myriad of reasons why non-profit status is so prevalent for these types of debt reduction organizations, and although some of the explanations for this are rooted in altruism, others are far more pragmatic.

1. Funding from the credit card companies at one time required it for funding – A large portion of credit counseling funding comes from the credit card companies themselves, and in order to qualify for this special funding, an organization was required to be non-profit. This funding, known as “Fair Share”, is doled out based on the payments received by the credit counseling agency and can be quite large depending on the volume of consumers the organization services.

2. Non-profit debt relief companies receive tax-exempt status – The IRS and many states automatically allow non-profits to receive tax benefits. Moreover, many public and private grants require these organizations to be non-profit.

3. Different state laws require credit counseling organizations to be non-profit entities – Various consumer protection laws at the state level only allow non-profit debt relief organizations to do business in their state. Therefore, in order to conduct operations in a number of states, credit counseling agencies are obliged to file non-profit status.

4. Many non-profit credit counseling organizations concentrate much of their activity on education – One key purpose that non-profits serve is to educate consumers on the benefits of responsible credit management and how to best go about dealing with debt.

Despite any marketing or advertising claims to the contrary, many debt relief organizations are non-profit because it serves their self-interest to do so. Granted, many credible credit counseling companies do in fact concentrate a large portion of their resources to education, which is deserving of non-profit status. Others, as the IRS has in recent years uncovered, were using their non-profit position to gain tax advantages, contributions from credit card companies, or access to otherwise prohibited markets.