If you’re trying to pay off your credit card debt but are struggling to do it on your own, you may want to consider nonprofit debt consolidation.
Nonprofit debt relief companies work with your credit card issuers to lower the interest rates on your credit cards, resulting in lower monthly payments until your debt is paid off. You will have one payment per month rather than having to make multiple credit card payments, but you will have to forgo using your credit cards during this time.
Here are some things to consider to help you determine if free debt consolidation is right for you.
What Is Non Profit Debt Consolidation?
When you are undertaking nonprofit debt relief, a financial advisor from a nonprofit debt consolidation company will work with you to put together a debt management plan that works best for your budget. Your advisor will negotiate with the credit card companies to reduce the interest rates you pay on your credit cards.
As part of your new debt management plan, rather than continuing to pay your credit card companies directly, you will typically make one payment each month to the nonprofit debt consolidation company. The business uses this money to pay your creditors.
“Nonprofit debt consolidation can be a good option for those who feel overwhelmed with multiple payments with different due dates to remember,” said Katie Ross, executive vice president of the organization at Profit. nonprofit American Consumer Credit Counseling. “With debt consolidation, you make a monthly payment on the day of the month that works best for you. “
Plus, because of the lower interest rate on your credit cards negotiated on your behalf, you’ll pay off debt faster, have more affordable monthly payments, and pay less interest overall. The repayment process can take two to five years.
You will also have to agree to close your credit cards so that you don’t get into more debt. But you may be able to keep a credit card in case of an emergency.
Unlike other methods you might consider if you want to pay off your debt, like taking advantage of a 0% credit card balance transfer or taking out a personal loan, with nonprofit debt consolidation, you don’t have to. You don’t need to take out a new loan to pay off the debt.
Types of debt serviced by nonprofit debt consolidation companies
Nonprofit debt management companies focus on helping with unsecured debt, most often credit card debt. But they can also help settle other unsecured debts, including student loans and medical debts.
When it comes to helping with student loans, nonprofit debt management companies will usually help clients explore their options, Ross explains. “These options can include loan cancellation, consolidation, or income-driven repayment plans. The options will vary depending on whether the customer has federal or private student loans, as federal student loans have different types of repayment plans.
For those with medical debts, nonprofit debt management counselors can help you analyze your financial situation and outline a variety of personalized options for settling debt, including providing referrals to social services, financial management resources and the opportunity to enroll in a debt management program.
Why Work With A Nonprofit Debt Consolidation Company?
Nonprofit debt relief companies aren’t looking to turn a profit when they help you. Indeed, a large part of their funding comes from grants from individuals and foundations. They also receive voluntary contributions from creditors. The purpose of these agencies is to help you get on a better financial footing.
“Nonprofit credit counseling agencies are dedicated to helping consumers overcome debt, make better financial decisions, and save for the future,” said Amy Maliga, financial educator for Take Charge America. “Nonprofit credit counselors receive extensive initial and continuing education to ensure they are able to help people facing a variety of financial challenges. “
These companies do, however, charge a fee, which is used to cover their expenses. Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling (NFCC) – the nation’s oldest and largest nonprofit consumer credit counseling agency – says the start-up fees of A debt management plan should generally be $ 50 or less, and monthly fees vary depending on a range of factors, including the amount of debt listed, but should average between $ 25 and $ 35. However, if you are in serious financial difficulty, you will not be charged any fees.
Fees vary depending on state laws and the nonprofit debt relief company you choose.
What to look for in a nonprofit debt consolidation company
When choosing a nonprofit debt relief company, look for one that has received accreditation from an independent organization.
NFCC member companies must be accredited by the Council on Accreditation (COA), an independent organization that accredits more than 1,600 social service organizations in the United States and Canada. NFCC financial advisors have been trained and certified.
You can also check the rating of a nonprofit debt relief company with the Better Business Bureau.
“As with any financial institution, consumers should do their research before choosing to work with a nonprofit credit counseling agency. They should be looking for longevity in the industry, ”says Maliga, of Take Charge America.
Consumer reviews on sites like TrustPilot can also be helpful when selecting an agency. You may also want to examine the company’s social media presence to see if it is actively engaged in providing financial education, Maliga explains.
Nonprofit Debt Consolidation vs For Profit Debt Relief
Nonprofit credit counseling agencies and for profit debt relief companies are different in various ways. In particular, because nonprofit credit counseling agencies receive financial support from other sources, their services are free or inexpensive. Additionally, a nonprofit debt consolidation agency will usually provide free educational materials to help with various aspects of financial planning, including budgeting and college or retirement planning.
For-profit debt settlement companies look to make a profit when they help you. In addition, they generally do not provide any type of continuing financial education to their clients. Here are some of the most important differences between the two types of businesses to keep in mind.
Non-profit debt consolidation
With nonprofit debt consolidation, your financial advisor will work with your credit card companies to lower the interest rates on your debt, and you will continue to make regular monthly payments to the debt consolidation company at nonprofit, which then transfers the money to your credit. card companies. This means that you are always making your payments on time and reducing your debt each month, which will help improve your credit.
In contrast, a for-profit debt relief company will tell you to stop paying your bills and put money in an escrow account. When the balance is high enough, the company will try to negotiate a debt relief plan with your creditors. But not paying your creditors can cause various problems.
“Failure to pay your creditors will result in collections, additional late fees and possibly legal action,” says Ross of American Consumer Credit Counseling.
Plus, there is no guarantee that your creditors will accept the debt relief deal that the for-profit debt relief company is ultimately trying to negotiate. If the settlement is rejected, you will face even more financial problems.
Even if the suggested settlement for the for-profit debt relief company is accepted, your credit score will take a hit because you haven’t paid your bills.
With nonprofit debt consolidation, your credit score may drop because you had to close your credit cards, but it won’t have nearly the same negative impact as not paying your bills.
For Profit Debt Relief
The purpose of a for-profit debt relief business is to make money, and companies may try to sell you products or services.
The Federal Trade Commission provides an overview of these for-profit debt relief companies, which will usually try to work out a debt settlement plan with your creditors. This means that the company will try to negotiate with your credit card companies to reduce the amount you owe.
A major downside to for-profit debt relief companies is that they force you to stop paying your creditors. Instead, you deposit money monthly into an escrow type account, and when the balance reaches a certain amount, the company will try to come to a settlement with your credit card companies. Some of your money goes to the for-profit business.
There is a good chance that your accounts will be flagged as overdue during this time.
The bottom line
A for-profit debt relief company may claim to settle your debts for a fraction of what you owe, but there is no guarantee that your creditors will accept the settlement offered by the company. Because you won’t be paying your bills for months, your debt continues to grow, and you could face endless calls from your credit card companies.
On the other hand, if you work with a nonprofit debt consolidation company, your debt will be gradually paid off over time at a lower interest rate, and your credit rating will not take a big hit. You’ll also avoid bill collection agency calls and costly late fees.