Non Profit Debt Consolidation

Seeking the help of nonprofit debt consolidation companies can certainly help to reduce your debt.  In this article, we're going to explain what non-profit debt help is really all about, and what you can expect from any company offering debt consolidation services.

Rising Debt in the United States

So what exactly is prompting so many Americans to seek the help of a nonprofit debt consolidator?  For one, personal debt for many Americans continues to rise.  In fact, according to recently published debt statistics, about 4% of Americans carry more than $10,000 in credit card debt, and all Americans owe an astounding $886 billion on their credit cards.

While not everyone agrees this volume of debt is bad from a macro economic standpoint, at an individual level things are quite different.  In fact, the sudden loss of a job or other source of family income can mean the difference between debt that is manageable and debt that's out of control.

As more people find themselves faced with difficult choices, they are seeking the help of debt consolidators.  Individuals with debt problems may have a sense of security knowing the organizations that are helping them with their debt problems are not-for-profits.

Finding Nonprofit Help with Debt

In order to find out if an organization is considered a nonprofit debt consolidation service provider, the first thing you should look for is a statement concerning its nonprofit status.  Specifically, the organization should be making some reference to achieving IRS 501(c) (3) non-profit charitable organization status.  Most online websites would usually have this kind of information in their "About" section.

This is an important piece of information to start with when evaluating a service.  If a company is claiming to offer a nonprofit debt service, then at the very least they should demonstrate that the federal government recognizes their nonprofit status.  One of the most common providers of nonprofit debt consolidation help was discussed in our article on Christian Debt Consolidation.

There are a number of warnings we gave out in that article that are worth talking about again.  We're going to provide these warnings as we are walking through the steps a typical nonprofit organization will use when helping someone with debt problems.

Help Restoring Credit Ratings

If any debt consolidator claims that they can restore your credit ratings immediately, then you need to be very skeptical of this claim.  Credit reports are based on past payment habits, which are referred to as your credit history.  There are basically three credit reporting agencies that gather information from creditors, and compile a report for individuals.  Credit reports are the basis for credit scores, which are a measure of how well an individual pays their bills.

Since credit reporting agencies use automated mathematical equations to calculate credit scores, there is very little anyone can do to help with an individual's score - except to help find errors on the report.  Nonprofit debt consolidation companies will help you to understand the credit scoring process, they can coach you on how to improve your credit score in the future, and they can help you to clean up errors.

But fixing errors appearing on your report is the only way that you can restore credit status in the short-term.  If a debt consolidation company claims to be able to do more than that, you need to be skeptical of their services.

Credit or Debt Counseling

Most nonprofit companies will offer debt or credit counseling for free.  This is an important step in staying debt-free in the long term.  Oftentimes, families face a financial crisis as a result of an emotional event that someone has experienced.  Debt counseling can help figure out if the family needs help that goes beyond financial planning.  If that is true, then the counselor will often make a referral to a local social services organization.

If you are seeking the help of a nonprofit debt consolidation company, then their services should go beyond just finding you a consolidation loan.  Their goal should be the same as yours:  Getting debt under control in the short term, and staying out of debt over the long term. That's why most good debt counseling organizations will introduce the concept of budgeting.  They'll also help you to put together what's called a debt management plan or DMP.

Debt Consolidation Loans

The most important service offered by the nonprofit organization should be to find you a debt consolidation loan that allows you to live comfortably and still make your monthly payments.  Here is where some more serious warnings come into play.  You need to understand if, or how much, of your monthly debt consolidation loan is acting like a donation to the nonprofit organization.

True non-profits or not-for-profit organizations will ask individuals to pay very low fees, or none at all.  Just because the company claims to be nonprofit, you still need to shop around to make sure you are getting the best deal on your consolidation loan.

Finally, remember that debt consolidation often involves turning an unsecured loan, such as credit card debt, into a secured loan.  That means you will need to supply collateral with your loan, and that will most likely be your home.  So while the payment terms may be much more to your liking with a consolidation loan, it also means that you carry a much larger risk if you default on your loan.  You could even lose your house.

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