What Is Nonprofit Debt Consolidation?
Nonprofit debt consolidation is a way to eliminate debt by reducing the interest rate paid on credit cards and lowering monthly payments to an affordable level. The goal is to pay off unsecured debt – primarily credit cards, but might include medical bills and unsecured personal loans – in 3-5 years without having to take out a loan.
Nonprofit debt consolidation is another name for a debt management program. The agencies that provide this service, give you a free credit counseling session, then offer options on the best way to get rid of debt.
The counselors are certified and trained in consumer credit, money management, and budgeting. In the initial counseling session, typically lasting 25-30 minutes, your entire financial situation will be discussed, and a personalized plan will be developed.
If you qualify for a debt management program (not everyone does), counselors work to create a budget that helps you reach the goal of eliminating debt.
If nonprofit debt consolidation is not the best answer, counselors could recommend a debt settlement plan or debt consolidation loan. If you’re in deep enough trouble where there doesn’t seem to be a way out, bankruptcy could be recommended.
Why Use a Nonprofit Debt Consolidation Company?
Being a nonprofit agency is a valuable, tax-exempt status conferred upon companies who must provide goods or services that benefit the public.
The rules for running a nonprofit business are strict and the standards are higher than for-profit businesses. Nonprofit companies are required to make public their financial and operating information and could lose their tax-exempt status for violating state or federal rules.
Nonprofits are a business. They charge fees, accept grants and donations to stay in business. That average monthly fee for nonprofit debt consolidation service is $50.
If you’re in deep debt, you’re probably desperate to escape and that makes you a target for the non-reputable scammers in the debt relief industry.
Not all debt-relief programs are built the same. Finding a trustworthy one can be a difficult task in itself. There are two major downfalls 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 will harm your credit score, add considerable amounts to your debt and ultimately make it more difficult to pay it off.
- The second downfall 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 back in, that doesn’t always hold up. Results are not guaranteed to carry over client to client.
Standards for Nonprofits
The top 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 obtain 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:
- An 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 when you choose a nonprofit debt consolidation company instead of those whose solution is debt settlement.
It’s all about the bottom line. Are they serving YOUR bottom line? Or THEIRS?
Nonprofit debt relief companies 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 less expensive 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 the 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 100% free budget analysis. That means thorough credit counseling and budget counseling is 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 tell-tale qualities that should define the decision.
Nonprofits have a series of 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 with a credit counselor. Once you have reached an agreement on the debt management plan, you then pay the agency an agreed upon monthly rate until the debt is settled. Nonprofit companies are usually reliable because they aren’t meant to make money unlike a for-profit. However, be aware they do charge fees between $25-$50 a month to handle your case.
Make sure to do your research before deciding on one company. Are they an accredited agency? What is their Better Business Bureau Rating? Do you have friend 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.
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- N.A. (2018) Nonprofit Debt Consolidation. Retrieved from https://www.incharge.org/debt-relief/debt-consolidation/nonprofit-debt-consolidation/
- Barrymore, J. (2018) How Non-Profit Debt Consolidation Works. Retrieved from https://money.howstuffworks.com/personal-finance/debt-management/non-profit-debt-consolidation.htm
- N.A. (2018) Nonprofit Debt Consolidation. Retrieved from https://www.myfinancialgoals.org/debt-consolidation-non-profit-by-american-financial-solutions.htm
- N.A. (2018) Accreditation and Standards of Excellence. Retrieved from https://www.nfcc.org/about-us/why-work-with-an-nfcc-agency/accreditation-standards-of-excellence/
- N.A. (2018) Choosing a Credit Counselor. Retrieved from https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor
- N.A. (2018) How To Lose Your 501(3)(c) Status (Without Really Trying). Retrieved from https://www.irs.gov/pub/irs-tege/How%20to%20Lose%20Your%20Tax%20Exempt%20Status.pdf