Non Profit Debt Relief Programs

The economy has been battered by a powerful storm of home foreclosures, job losses, and personal financial difficulties. Many families and individuals are living with significant amounts of debt. Debtors may believe that non-profit debt relief programs are the answer to their problems, but some services have turned out to be scams.

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Non-profit debt relief programs often offer a debt counseling session for $30 to $75 to any interested consumer. The popular service allows professionals to review a client's financial situation, offer advice, and take questions about finances. After a client has completed the debt counseling session, they have their choice of additional debt relief options.

Another service that non-profit debt relief programs push is a debt management plan (DMP). A DMP allows a debt relief agency to negotiate on their client's behalf to lengthen the repayment period, lower payments, or reduce interest rates. Because the debt relief professional handles the renegotiation phase, clients may receive more favorable terms than they would if they had attempted to renegotiate without assistance.

However, nearly 70 percent of all DMP clients fail to complete the plan because the payment terms are too complex. Although the DMPs are designed for a specific type of debtor, debt relief programs often enroll people who have financial situations that would be better resolved with other tools.

The Federal Reserve Board's study, Whither Credit Counseling, recorded roughly 35 percent of people in a debt counseling session as eventually signing up for a DMP. Less than seven percent of people who were told to file bankruptcy enrolled in a DMP, but about 50 percent of DMP clients will file for bankruptcy within the initial six months of their plan.

Critics say non-profit relief programs suggest DMPs to unsuitable clients because they depend on the monthly DMP fees. More consumers on DMPs gives more money to the non-profit. Non-profit debt relief programs often have limited funding, and many organizations need a steady stream of clients. Some non-profit debt relief organizations choose not to fully disclose their relationship to DMPs and to creditors.

Financial advisers suggest creating a budget, cutting out frivolous or unnecessary spending, and sorting through all financial documents before meeting with a debt relief professional. Carefully consider all of the available options before signing up for a paid service. Although non-profit organizations may claim to be better than paid services, each consumer's situation is different.

Because a person's credit history can take time to rebuild after a mistake, take the time to read any fine print on a contract. Clients should be sure to make personal copies of any contract.

A DMP is necessary for some debtors, but people seeking debt relief must take the time to investigate any free, paid, or non-profit debt relief program. There is no single option that will solve every person's debt situation. Taking the time to construct a budget, investigating all of the debt relief options available, and sticking to a long-term financial plan will help any person reduce their overall debt.