6 Ways a Nonprofit Counselor Can Help You
1. Offer you a free debt counseling session
In my experience of interviewing nonprofit organizations, the good ones will work with you for at least an hour to an hour and half to review your entire debt situation and overall financial position for free. If there is an up-front fee, it will be very small—less then $100. Before the counselor gets into the nuts and bolts of your situation, he will most likely start with a "holistic approach" to understand your situation better. He may ask you a question like "What brings you to us today?" This question helps to break the ice and, equally importantly, allows the counselor to really hear your story so he can coach you appropriately.
2. Help you look closely at where your money really goes
Once the counselor has asked you what brought you to the nonprofit, it's time to look specifically at your finances. He will look at what you earn and what your expenses are. Then, he will look closely at your debt, how much you have, what your interest rate is and what you are wasting in late fees and over-the-limit fees. After doing all this work with you, he be able to access if he believes you are in a financial position to get out of debt with their assistance, require a DMP (debt management plan) or need to consider bankruptcy.
Ultimately, reducing your debt won't work if you don't create a spending plan that allows you to live with in your means and pay down your debt at the same time. This spending plan or budget is a critical part of what a great nonprofit counselor will do with you. A good counselor will look at where your money is going and make recommendations on where you need to cut back and save money to live within your means.
4. Work with you on "secured debt"—not just "credit card debt"
There are two primary forms of debt: secured debt (e.g., mortgage debt or car loans) and unsecured debt (e.g., credit card debt). A good counselor will review your secured debt and your unsecured debt. The goal will be to first stabilize your financial life at home and make sure you can eat, keep the lights on and pay your rent or mortgage. Then, your counselor will look at how to best deal with your credit card debt.
5. Recommend a DMP if it makes sense for you
A DMP is a payment plan negotiated with the credit card company by the nonprofit consumer counseling company to help you get out of debt. In most cases, the DMP will do the following:
- It will give you a five-year plan to get your debt paid off completely.
- It will lower your interest rate on your credit card debt (or unsecured debt)—usually to less than 10 percent. In many cases, companies will lower the rate to 0 percent interest, provided you pay the bills on time.
- It will end the over-the-limit fees and annual credit card fees you are being hit with.
- It may waive your late fees on credit cards.
- The nonprofit organization will pay your bills for you (once you send the money to them), and they will show you proof of your debt being paid down.
- The credit card company may or may not report your account as being on a DMP to the credit bureaus, and it can affect your credit score.
- You may be asked to sign a DMP agreement making the payment plan terms official. Read this in detail before you sign it.
My most important advice is that you find a nonprofit credit counseling organization that is affiliated with one of two major credit counseling membership organizations. These two member organizations will refer you to a credit counselor in your area that you can work with. Both organizations worked with millions of people last year, so trust me, they have seen it all.
National Foundation for Credit Counseling (NFCC)
- Toll-free: 800-388-2227
Any nonprofit credit counselor who is honest and worth trusting won't do the following:
- He won't pressure you to sign up.
- He won't charge you a huge sign-up fee. In most cases, the sign-up cost for a nonprofit credit counseling organization is $75 (and maybe less).
- He won't charge you a huge fee each month. In most cases, the monthly fee for a nonprofit consumer counselor is $50 or less.
- He won't tell you to stop paying your credit card debt or other debt so he can negotiate a better deal for you.
- He won't tell you he can sue the credit card company on your behalf.
- He won't recommend a DMP first, before he really looks at your overall financial picture.
The 8 steps to get out of debt
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