If you are struggling with debt, credit counseling may be an option to consider. However, before engaging with a credit counselor, there are important differences to know between nonprofit credit counseling programs and debt relief companies.

What is credit counseling?

There are many credit counseling companies out there that help people work through their debt and money management issues. Credit counseling services come from both nonprofit credit counseling companies and for profit debt relief companies but there are key differences between them.

Nonprofit Credit Counseling
For Profit Debt Relief Companies
  • Typically the full amount of the payments made go directly to your creditors
  • Generally a portion of the payments made go to the debt relief company, the remainder is sent to your creditors
  • Often set up payment plans that may not have tax implications
  • Typically take payments upfront in order to settle (or pay a portion of your debts) that may have tax and credit bureau implications
  • Reach agreed upon payment plans or agreements with your creditors to ensure that the creditors will not pursue collection efforts or charge late fees while on the plan
  • Often have no up-front agreements with creditors, some creditors will not negotiate with debt relief companies
  • Most commonly associated with National Foundation for Credit Counseling (NFCC) and are non-profit 
  • Debt relief companies also refer to “debt relief” and “consolidation,” but are not associated with NFCC
  • Typically do not advise consumers to stop paying their debt
  • May advise consumers to stop paying their debt, even though this may further damage your credit and could result in collections, additional late fees, penalties, and potential legal action
  • Counsels people on debt management and paying down debt
  • Often has consumers sign a cease and desist and/or power of attorney

Nonprofit credit counseling

Most nonprofit credit counseling agencies are mission-driven organizations that typically offer many free educational services and other resources to help build healthy credit habits and support the debt management needs of their customers. These nonprofits may also be members of national associations, such as the National Foundation for Credit Counseling.

Nonprofit credit counselors are typically trained and certified to assess your current financial situation and help determine a repayment plan. They typically help to negotiate repayment plans or agreements with your creditors. Nonprofits often do not negotiate reductions in the amounts owed which may result in less of a tax impact. These counselors may also help you understand how to adjust spending and saving habits in the future to help avoid a repeat situation down the road.

By having a plan for paying down debt and providing tips to change money management habits, the credit counselor may help you build a foundation for managing debts and improve your financial health.

It can be hard to tell the difference between a nonprofit and for profit company because they use similar language, such as credit counseling, consolidate your debt, debt negotiators and debt relief.

For-profit debt relief companies

While many nonprofit credit counseling providers offer free services, for profit debt relief companies typically are fee-based. Sometimes referred to as “debt settlement companies,” these for-profit companies typically take payments upfront prior to working with your creditors.

Before engaging with a debt relief company, be sure you verify the terms and understand the consequences. A common strategy used by debt relief companies is to have you stop making all payments in an effort to get those creditors to write off the debt or prompt negotiation. The idea is that creditors may be more willing to accept a portion of the debt instead of nothing. However, one of the consequences of this approach may be a significant negative impact to your credit score, and settlements may have tax implications.

Debt relief companies also typically have you stop contacting your creditors directly or sign paperwork to cease and desist contact from them. Creditors will often work with you to come up with the same option (if not better) than what the debt relief company could do.


Beware of debt relief companies that try to collect upfront fees in return for guarantees that they will settle your debts. Keep in mind that neither credit counselors nor debt relief companies can erase all of your debts.

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