Free Credit Counseling Agency

Finding and working with a free credit counseling agency seems to be the solution for many debtors suffering through financial crisis these days. But you should beware of advertising claims that sound too good to be true.

If a credit counseling agency is free for you, it can mean one of two things. Either it is a well-run non-profit organization or the enterprise is getting their revenue from another source—in most cases, that would be your lender.

Whatever the case on how they get paid, you need to know, since it will have a huge impact on the outcome of your credit counseling program. We will show you more about why some credit counseling services can afford to be free to the consumer and what the implications are for you.

Non-Profit Credit Counseling

There are genuine non-profit credit counseling companies out there which are able to offer their services to average consumers for free. If you come across one of these, consider yourself lucky. Many less reputable companies claim to be non-profit, even though they really are not.

Any legitimate non-profit organizations must have legal recognition as such, so they should have documentary evidence of their non-profit status should you choose to ask for proof. Non-profit companies do not necessarily provide free services, but many offer credit counseling at a greatly reduced cost.

When Your Credit Counselors Work for the Lender

In some cases, while the counseling may be free on your end, the agency is generating revenue from the other end of the equation: the lenders. Why would your creditor pay a debt counselor to help you get out of debt? There's a simple answer to that.

If you get into a position where you are unable to repay what you owe, the lender is not making money. In some circumstances, it will be in the lender's best interest to agree to lower interest rates or make changes to the terms of the loan in order to make it easier for you to repay the outstanding balance.

In this instance, you pay nothing to the credit counselor and come out with a plan that can get you out of debt. The creditor gets their money repaid, the credit counsellor is paid by the lender for their services—it is a win-win for everybody. At least, that is the sought after scenario.

Free Consultations

Some services are not free, but offers of advice and consultation are free. In other words, if you want to use the service for a debt management plan to actually pay off your debt, you will have to open an account and pay fees. But if you just want some professional guidance so you can make a decision about your finances, you can usually find high quality advice without having to pay anything up front. This is a common advertising strategy used by many counseling companies.

Which Type of Free Credit Counseling Agency Is Best?

All of these options have their good points. If you are absolutely broke, finding a legitimate non-profit organization offering a free service is probably the best way to go. The problem is, these free agencies can be hard to find depending on where you live. If you can't find one, you should consider going with a company that offers quality free advice and consultation coupled with low monthly fees. A free credit counseling service which is paid by creditors will probably not have your best interests at heart.