How does nonprofit debt consolidation work?

A nonprofit debt consolidation company is an organization that helps people pay off their debts with one payment per month, without taking out a new loan or credit card. Many programs advertise being able to get clients debt-free in less than 5 years. The most prominent feature of a nonprofit debt consolidation company is that they will negotiate with creditors to lower the borrower’s overall balance.

As nonprofit organizations, these debt consolidation companies do not pay taxes to the IRS because they “provide a public benefit.” The companies are not out to make money, but that does not mean they are free. You will typically have to pay a small one-time setup charge as well as monthly fees.

How Nonprofit Debt Consolidation Works:

1. You get a free consultation from the company.
2. The company offers you a plan to enroll in.
3. You pay a setup fee to the company.
4. The company negotiates with your existing creditors.
5. You make one payment (to the consolidation company) per month.
6. The company distributes your monthly payments to your various creditors until your debts are paid off.

Non-profit debt consolidation may seem like an attractive alternative to taking out a new loan, especially since you may still be able to significantly reduce what you’re paying your existing creditors. However, there are a few things to be wary of.

Drawbacks of Nonprofit Debt Consolidation

Fees: Though the companies don’t charge excessive fees, there are plenty of personal loan and credit card options to consider that won’t charge you any fees.

Credit score damage: A nonprofit debt consolidation program may encourage you to stop making payments to your existing creditors until program representatives can negotiate a lower repayment amount on your behalf. It’s harder to negotiate if the creditors can comfortably expect to receive full repayment on schedule, after all. But naturally, skipping payments will lead to late fees and credit score damage.

The stain on your credit history from paying late will make it harder to get other credit in the future. Plus, it’s not guaranteed that the company can get you better rates. So, these programs may not be worth it.

Now that you know the potential downsides of nonprofit debt consolidation, you can make an informed choice on whether or not to apply. Below, you can find a few popular options and instructions on how to pick a company that is reputable.

Popular Nonprofit Debt Consolidation Companies:

• InCharge Debt Solutions
• GreenPath
• American Consumer Credit Counseling
• American Financial Solutions

Before you apply with any nonprofit debt consolidation program, you should do some research to make sure the company is reputable. The best programs are ones certified by organizations like the National Federation for Credit Counseling, the Council on Accreditation, or the American Fair Credit Council. In addition, you can read reviews left by users and check the company’s Better Business Bureau rating.