Nonprofit credit counseling for payday loans: what to expect

A nonprofit credit counselor goes through your income, bills and debts with you, builds a budget, and tells you which options fit: a payment plan with your lenders, a debt management plan, or something else. The CFPB tells payday borrowers who can’t repay to speak with a credit counselor. The first conversation is where the value is.

What a counselor actually does

Expect the first session to be mostly questions. What comes in each month, what has to go out, who you owe, how much and when. With payday loans, have these ready:

• Each loan agreement, or at least the lender’s name, the amount, the fee and the due date
• How many times you’ve renewed each one
• Whether the lender is pulling payments from your bank account
• Your last two pay stubs and your bank statements

From that, a good counselor will tell you what to pay first, whether your state requires your lender to offer an extended payment plan (you can check that yourself on your state’s page), and whether a debt management plan makes sense.

Where to find a legitimate nonprofit

Two national associations list member agencies:

• National Foundation for Credit Counseling (NFCC). It has offered nonprofit counseling since 1951 and says it has more than 1,500 certified counselors. Use its agency finder.
• Financial Counseling Association of America (FCAA). It describes itself as a member-supported 501(c)(3) national association of credit counseling agencies. Use its counselor finder or call the number listed there.

Membership in either is a reasonable first filter. It isn’t a guarantee. The FTC suggests also checking any counselor with your state attorney general and local consumer protection agency before you sign anything.

You can also ask us to connect you with nonprofit counseling through the help form.

The U.S. Trustee list is for bankruptcy only

You’ll see the Department of Justice’s list of approved credit counseling agencies mentioned a lot. Those agencies are approved to provide the counseling you must take before you can file for bankruptcy. The U.S. Trustee Program says it “has not reviewed nor approved” their other services, including debt management plans. Being on that list tells you nothing about the quality of a DMP.

What a debt management plan is

In a debt management plan, the counselor works out a payment schedule with your creditors, who may agree to lower interest or waive fees. You send one deposit a month to the agency and it pays your creditors.

The FTC says a plan often runs 48 months or more and that you may have to stop using new credit while you’re in it. It covers unsecured debts, not secured debts like a car loan. The NFCC describes its plans as 36 to 60 months, with a setup fee and a monthly fee, income-based fee waivers, and interest rates that may drop to “10% or less.”

Will a DMP cover my payday loans?

Maybe not, and you should know that before you sit down. The NFCC describes a DMP as a repayment program for unsecured debt, “mainly, credit cards,” and says loans “typically can’t be included in your plan.” It doesn’t mention payday loans specifically, and we haven’t found a primary source that settles it.

So ask the question straight out: “Will my payday lenders accept payments through your plan?” If the answer is no, a DMP can still help indirectly. Moving credit card payments onto a plan at a lower rate can free up enough each month to pay the payday loans off on their own, or to qualify for a payday alternative loan and clear them in one go.

Red flags

The FTC’s list of warning signs for anyone offering debt help:

• They want fees before they’ve settled or changed any of your debts. The FTC’s line: “Only scammers will try to collect fees from you before they settle any of your debts.”
• They guarantee results.
• They sign you up without reviewing your finances.
• They say they’re part of a “government” relief program.
• They tell you to stop talking to your creditors.

Add one more for payday loans: anyone who tells you to stop paying your lenders and send the money to them instead. In 2016 the FTC banned the operators of “Payday Support Center” from the debt relief business after people followed that advice and got no relief. More on telling real help from a scheme in payday loan consolidation.

“Nonprofit” on its own proves little. As the FTC notes, “Just because an organization is a non-profit doesn’t guarantee its services are free or affordable.” Ask what every fee is, in writing, before you agree to anything.

Where counseling fits

Counseling is usually the fourth move, after you’ve stopped renewing, gotten control of the withdrawals from your account, and asked about a payment plan. If you have several debts besides payday loans, it’s worth calling sooner. The whole sequence is in how to get out of payday loans.