Non-Profit Debt Consolidation

What Is Nonprofit Debt Consolidation?

Nonprofit debt consolidation combines your debt into one manageable monthly payment, often through a debt management plan.

Nonprofit debt management has agreements with card companies to reduce the interest rate on your debt, which lowers your monthly payment to an affordable level. The goal is to eliminate your unsecured debt (credit cards, medical bills and unsecured loans) in 3-5 years.

The biggest benefit of nonprofit debt consolidation is that you pay less monthly and in the long run. Because the plan is for a set amount of time, you don’t spend years making payments on credit cards without putting a dent in the balance.

The fixed monthly payment – the amount doesn’t change – is also easier to budget than moving-target credit card payments.

Nonprofit debt consolidation helps you build a stronger financial foundation. Before you agree to a debt consolidation plan, a credit counselor, who is certified in money management and budgeting, reviews your finances to determine which debt-relief option is best for you.

“Nonprofit” is exactly that. The nonprofit credit counseling agencies are required to act in your best interest and are not selling products. While it’s not “free” debt consolidation – a small setup and monthly fees are charged – it’s as close as you will get.

If nonprofit debt consolidation is not the best answer, counselors may recommend a debt settlement plan or debt consolidation loan, or, if you’re in deep trouble, bankruptcy.

Types of Debt That Can Be Consolidated

Nonprofit debt management plans combine unsecured debt, which is debt that you don’t have to provide collateral for. Only unsecured debt is eligible for consolidation.

Unsecured debt that can be consolidated is:

• Credit Card Debt
• Medical Bills
• Personal Loans
• Payday Loans

Secured debt is the opposite. Examples of secured debt are a mortgage or car payment, where the house or car can be taken by the lender if you don’t pay.

Why Use a Nonprofit Debt Consolidation Company?

Nonprofit credit counseling agencies are tax-exempt because they provide goods or services that benefit the public.

Because of that status, nonprofit debt consolidation follows strict rules and standards that are higher than those for-profit debt relief agencies. Nonprofit agencies are required to make public their financial and operating information and could lose their tax-exempt status for violating state or federal rules.

Nonprofit debt consolidation companies are a business – they charge fees, accept grants and donations to stay in business. The average monthly fee for nonprofit debt consolidation service is $50.

If you’re desperate to get out of deep debt, you’re a prime target for scams that proliferate in the for-profit debt relief industry.

Finding a trustworthy debt-relief program can be difficult. There are two major pitfalls with for-profit debt relief companies.

Many debt-relief companies, especially those providing debt settlement services, encourage you to not pay your credit card bills. This harms your credit score, adds a considerable amount to your debt and ultimately make it more difficult to pay it off.

The second pitfall is that some companies claim their clients pay only 40%-50% of what is owed. That is possible, but when service charges, late payment fees and interest are added in, the 40%-50% claim rarely hold up.

Potential Drawbacks

The biggest drawback to a debt consolidation solution is that you may not qualify for a favorable offer.

If you’re struggling financially, your credit score may have taken a hit – possibly a substantial one – that would make lenders reconsider the terms of a debt consolidation loan. They might approve the loan, but at an interest rate and fees added on, doesn’t improve your position.

If you choose debt management as your consolidation plan, there may be a requirement that you close all credit card accounts, which will hurt your credit score and reduce the flexibility you have in making purchases.

Another drawback is that debt consolidation isn’t available if you’re trying to get relief from home or automobile debt. Those are secured debts, and it would be unlikely you could qualify for a lower interest rate than you’re paying.

The final drawback would be opening up lines of credit might be a temptation to spend again. Overspending with credit cards is how most debt starts so unless you’re disciplined about cutting back, consolidation might open the door to more trouble.

Standards for Nonprofits

The best nonprofit debt consolidation companies belong to the National Foundation for Credit Counseling (NFCC), the oldest and largest organization for financial counseling in the U.S.

Members agree to follow the NFCC’s mission of promoting financially responsible behavior by not just providing counseling services, but also educating consumers on all matters of personal finance. NFCC member organizations train and certify credit counselors in areas as diverse as debt management plans, home buying, student loans and even bankruptcy.

Every NFCC member must get accreditation from the Council on Accreditation (COA), an independent third-party organization that has reviewed more than 1,500 social service programs around the world.

NFCC members must subscribe to the COA’s best practices standards, which include:

• Annual audit of its operating and trust accounts.
• Being licensed, bonded, and insured.
• Supporting and delivering a variety of consumer education programs.
• Meeting all consumer disclosure requirements as set forth by the Federal Trade Commission.
• Making services available to the public, regardless of their ability to pay.

All NFCC agencies must be re-accredited by the COA every four years. In addition, all member agencies must comply with the NFCC’s Member Quality Standards guidelines, which guarantee their ability to provide quality education and assistance to consumers.

Nonprofit vs. For-Profit Debt Consolidation Companies

There are distinct differences between nonprofit debt consolidation companies and those whose solution is debt settlement.

It’s all about the bottom line. Are they serving YOUR bottom line? Or THEIR bottom line?

Nonprofit debt relief agencies offer solutions that are best for your situation, not driven by a sales commission or profit motive. The for-profit companies are sometimes criticized for offering products, services and advice that are best for the company’s bottom line instead of the client’s best interests.

Here’s how to tell the difference between a nonprofit debt relief company and another debt relief company:

• The NFCC affiliation. Always look for that. NFCC member organizations are all 501(c)(3) nonprofit debt relief companies.
• You shouldn’t be charged up-front fees. The Telemarketing Sales Rule for Debt Relief Companies stipulates that no debt relief company can charge up-front fees before providing a service. Nonprofits have minimum set-up charges and monthly fees for their debt management program, but those typically are much lower than the fees for debt settlement. Beware of any company that has high fees, vague fees or insists upon voluntary fees beyond your means. Those are red flags.
• Check with the Better Business Bureau. Are there complaints against a debt-relief company? How have they been resolved? Complaints range from poor customer service to false advertising to improper billing.
• Check with your state attorney general and/or consumer protection bureau. Make sure the debt-relief company is licensed in your state. Ask if there are actions or ongoing investigations involving the company.
• Nonprofit debt relief companies should offer you a free budget analysis. That means thorough credit counseling and budget counseling are free. Accept no less.
• If you’re being offered guarantees to settle your debt for pennies on the dollar, hearing aggressive sales pitches or being promised “quick fix’’ solutions, run. These are huge red flags.

What to Look for in a Nonprofit Debt Relief Company

When determining the ideal debt consolidation company for your needs, there are some key things to look for.

Nonprofits have guidelines and rules that must be followed in order to maintain 501 (c)(3) nonprofit status:

• Its activities should not serve their private interests or benefit people such as board members, officers, directors, or employees.
• Its lobbying — advocating the adoption or rejection of political legislation — must be tempered. Nonprofits can’t participate in political campaigns.
• It can’t earn excess unrelated business income (UBI), which comes from trade or business that is not substantially related to the organization’s exempt purpose.
• Although exempt from federal income tax, nonprofits must report certain information annually, according to the Internal Revenue Code.
• Simply put, the organization must pursue the exempt activities it promised in its IRS application for exemption.

Look out for fees companies charge and if it would even be worth your time to enter into an agreement with the business. A nonprofit credit counselor is the safest option for eliminating credit card debt.

Consider Your Options

Nonprofit debt consolidation involves consolidating your debt through a nonprofit credit counselor. Once you have reached an agreement on the debt management plan, you pay the agency an agreed upon fixed monthly amount until the debt is eliminated. You can choose to leave the program at any time, but you will lose whatever concessions the creditor made for you. Nonprofit debt relief companies are usually reliable because they aren’t meant to make money, unlike a for-profit. However, be aware they do charge fees between $30-$50 a month to handle your case, as well as a startup fee of $75 or less.

Debt settlement is a viable option if you are not concerned about the damage that can’t be eliminated from your credit report for seven years. In other words, you may save money in the short run, but it could be costly in the long run.

Do your research before deciding on one company. Are they an accredited agency? What is their Better Business Bureau rating? Do you have friends who can vouch for their services? Try to answer those questions and see if the nonprofit debt consolidation company is right for you.

So, what is the best option? The easy answer is to stick with a nonprofit credit counselor. Steer clear of for-profit debt relief companies. They can often make the problem worse. There is a reason they make a profit. Take control of your finances and you can be well on your way to becoming debt free.