How Do For-Profit & Non-Profit Credit Counseling Agencies Differ?
With so many credit counseling agencies available around the country, it is sometimes difficult to determine which is the best choice for consumers who are facing financial troubles. The debate between selecting a for-profit agency or a non-profit agency can lead to curiosity about the differences between the two. While it might seem that both types of agencies are working in the consumers best interest, understanding the key differences can help determine which organization will help the most.
Credit Counseling Agency Funding Differences
One of the key differences between for-profit and non-profit credit counseling agencies is how the business funds its activities. This is an obvious difference between the two, but it also helps identify the consumer’s best interests.
A for-profit agency is charging the consumer for its services. This means that the consumer is paying for the work the company performs. If the consumer is paying and not the creditor, the best interest of the customer is often observed.
The for-profit credit counseling agency is more likely to take a stand against the creditor and work for the benefit of the consumer.
A non-profit agency differs in the funding process. Many non-profit agencies are actually paid by the creditors, resulting in a potential problem when it comes to helping consumers reach their goals. Though the non-profit organizations receive some proceeds from the creditors, it does not always mean that they do not listen to consumer concerns and strive to help them through tough financial times.
The funding is only one difference, but it is one of the major components that sets the two companies apart.
Potential Services of a Credit Counseling Agency:
Funding is not the only difference between the two types of agencies. Another major difference is the type of services consumers can expect to receive and the options available for debt relief.
A for-profit credit counseling agency will offer most of the same services as a non-profit group but with a few key additions. Beyond simply helping consumers get their budget in order and reduces costs, for-profit services often have options like consolidation, settlement and bankruptcy assistance for customer relief.
Since many companies recognize that consumers might need credit relief and debt consolidation or settlement services, the for-profit companies help fill this necessity.
Consumers who are not able to manage their debts need help in more than just cutting expenses and making a budget.
The non-profit organizations do not provide the same credit relief services. Instead, the non-profit groups usually provide a wide range of basic needs like financial education, budget planning and foreclosure prevention. The companies are also required to provide pre-bankruptcy counseling to individuals who no longer have other debt relief options.
Non-profit groups will generally not have any services to reduce the cost of loans or debts. Instead, they might offer help in making the loan term longer so that payments are reduced, but interest and total principle remains the same.
Working with Credit Counseling and Creditors:
Along with the basic services that companies often offer, consumers can expect for-profit and non-profit groups to limit the number of creditors they are willing to work with. This means that some creditors are not eligible according to the group’s policies.
For-profit groups are usually willing to work with creditors that are likely to reduce the total debt dramatically or with large debts.
This helps increase the profit margin of the company since many of the credit counseling agencies that work for a profit charge a percentage of the savings.
The non-profit groups are usually divided into two categories: the agencies that work with all creditors and those who only work with creditors paying the Fair Share fee. The best non-profit group to work with among these two categories is the group that will work with any creditor to resolve issues for consumers.
Credit Counseling Agency Tax Status Differentiators :
The tax status is another key element that differentiates agencies as for-profit or non-profit. While the federal exemptions of filing a 501(c)(3) or a 501(g) can give a first clue, the major component is the state requirements.
Each state differs in how they determine whether a company is non-profit or for-profit, so it is a matter of state paperwork and laws. Federal exemptions are only one part of the status requirement.
Determining the difference between for-profit and non-profit agencies is primarily a matter of how the companies are funded and the tax filing status. Many aspects are similar between the groups, but the services provided by for-profit agencies are often better for consumers who are struggling to pay high-interest debts. Non-profit groups are often better when the goal is budgeting, planning for large purchases or looking into options for personal finance education.