If you turn on your television, you’ve probably heard the term, “debt consolidation.” But unless you’ve actually needed to use it in the past, you may not really understand what it is or how it works. It is actually a really simple concept, but there are so many different types of debt management available today that it’s quite easy to get them confused.
Debt consolidation is actually just what the name implies – it’s the act of consolidating a number of debts into one debt that carries one monthly payment. As an example, many consumers today carry multiple credit cards, most of them with balances. Most consumers also have a variety of other debts, such as medical bills, students loans, or personal loans. Each of these debts typically comes with a monthly payment that must be made. Debt consolidation can allow a consumer to consolidate, or lump, some or all of their debt into one monthly payment. When this happens, the consumer makes one monthly payment instead of multiple payments.
This is beneficial to many consumers for a variety of reasons. First, debt consolidation often allows a consumer to pay less than what they were paying when making multiple payments. Debt consolidation companies are also often able to negotiate with creditors to secure lower interest rates which means that the consumer can pay the debt off faster than they could have when making multiple payments. Another benefit for people who have fallen behind on monthly obligations, debt consolidation offers the advantage of allowing them to catch up on payments while improving their credit score over time. When payments begin to be made on time, it also ends unwanted calls from creditors trying to collect on bad debt.
What Is a Non Profit Debt Consolidation Company?
It’s important to understand that there are two main types of debt consolidation companies. Those that operate for profit and those that don’t. A non profit company is one that has received a 501 (c) (3) status from the IRS. This is a special tax status that is given to charitable companies that don’t seek to make a profit from doing business.
Non profit does not mean that the debt consolidation company doesn’t make any money, nor does it mean that they don’t charge their clients fees for their services. It simply means that they are not in business to make a profit. Because they still have operating expenses, non profit debt consolidation companies typically charge fees in order to cover their overhead. However, because of their special filing status with the IRS, they are also able to receive donations and to engage in fundraising efforts, which often allows them to offer their services at a lower cost to their customers.
A legitimate non profit debt consolidation company works to assist consumers who have gotten into trouble with consumer debt without making a profit.
Choosing a Non Profit Company For Debt Consolidation
Just like when choosing any debt consolidation company, it’s important to do an appropriate amount of research before you turn over your financial information and allow a company to negotiate on your behalf. Simply having non profit status with the IRS does not mean that a company is operating ethically, and there are some debt consolidation companies that abuse their non profit status to take advantage of consumers.
If you’re interested in using a non profit company to assist you with your debt, the first thing you should do is confirm their non profit status. Non profit companies will usually state their status on their company website; you can also ask about their non profit status when interviewing potential debt consolidation companies.
When choosing a debt consolidation company, it’s always smart to check with the Better Business Bureau (BBB) to gather information about how they do business. The Better Business Bureau manages consumer complaints and rates companies based on a variety of criteria.
When talking to different non profit debt consolidation companies, make sure that you feel comfortable with the credit counselor that you are speaking to. They should take enough time to talk with you in order to decide if you are a good candidate for their services. Companies that offer a one-size-fits-all approach are typically not legitimate. Not all situations are the same, and reputable companies will often offer many different options for consumers who are trying to get out of debt.
Look for companies whose credit counselors are accredited in their field. The National Foundation for Credit Counseling and American Association of Debt Management Services both accredit credit counseling services and can provide a wealth of information.
Additional Online Resources
The internet is a valuable source of information for anyone who is considering using a non profit debt consolidation service. Actual company websites are a great place to start when collecting information about a company and can also be used for comparison purposes. The Better Business Bureau also has a website where consumers can find information about different companies, as well as a wide variety of educational articles and helpful information on choosing a non profit company to do business with. The National Foundation for Credit Counseling and the American Association of Debt Management Services both provide online databases with information about a wide variety of debt consolidation companies that may be useful to those who are researching companies as well.
