Living with credit

Credit counselors peering over ‘fiscal cliff’

Fred Williams

If you are just scraping by, barely able to meet your monthly bills, the federal government’s “fiscal cliff” may not be high on your list of worries.

But one of the proposals to shrink the nation’s budget gap could put tapped-out consumers deeper in the hole.

A proposal to cap tax deductions, including charitable contributions, would put a squeeze on nonprofit credit counseling services, an advocate for the organizations said, forcing some to close and send their financially strapped clients to other agencies.

“We do get quite a bit of money from charitable contributions … grants from United Way or Catholic Charities,” said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. “The smaller agencies with a small number of people … would probably go out of business.”

There are about 295 nonprofit credit counseling agencies in the U.S., according to the association. These agencies are often the place people go for help crafting a debt management plan to avoid bankruptcy. The organizations collect fees for running the debt management plans. They also get fees from credit card issuers and other creditors. But this income doesn’t quite cover expenses at small counseling agencies that lack high-tech efficiency tools.

Although they are classified as charities, the agencies rarely get donations directly from individuals, Jones said. But small, locally focused ones often do get grants from community organizations like United Way to close their budget gap, so a drop in charitable contributions would hurt them indirectly.

There are alternatives to nonprofit credit counseling, and a pullback by these agencies may cause more debtors to turn to private-sector alternatives for help. But consumer advocates and regulators have been generally unimpressed with the record of for-profit debt settlement companies. Online budget calculators offer a first step toward getting control of finances, but cannot tailor an individual debt reduction plan that a counseling agency can provide.

Advocates for the nonprofits are talking to policymakers in Washington about the potential fallout from a charitable contribution cap. However, Jones said, it is not a big agenda item in the scheme of things, with tax increases and spending cuts looming that could shove the economy back into a recession. “They have other fish to fry,” he said.

The problems of a few little nonprofits may not amount to a hill of beans in this crazy world. But with extended unemployment benefits about to expire and Social Security taxes going up, this looks like an inconvenient time to close agencies that help people deal with money problems. According to Jones, “consumers are in a lot rougher shape than the news media would have you think.”

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