Nonprofit Debt Consolidation

What Is Nonprofit Debt Consolidation?

Nonprofit debt consolidation is a way to reduce credit card debt and make payments on time without taking out a loan. It is offered by nonprofit credit counseling agencies, like InCharge Debt Solutions, and really is just another name for debt management programs.

In some cases, credit counseling may be enough to solve your problem. Before enrolling in a program with a nonprofit debt consolidation organization, you can take advantage of a free credit counseling session. The counselor will review your finances and help you create a monthly budget. Counselors will also review the options for getting out of debt, and help you decide which is best for you based on your income, debt, and expenses.

Some of the options, including debt management and nonprofit debt settlement, don’t have a credit score requirement, making them good options for people whose debt has damaged their credit.

What Types of Debt Can a Nonprofit Debt Consolidation Company Help With?

Nonprofit debt consolidation is for unsecured debt, which is debt that not backed up with collateral. For example, credit cards and medical bills are unsecured debt. A mortgage or car loan is secured debt because the lender can take back that property if the debt isn’t paid.

Credit card interest rates average more than 17%, and the average for people with bad credit is more than 26%. Rates can be as high as 36% – though there is no official limit. Nonprofit debt consolidation can reduce credit card interest rates to around 8%, and sometimes lower, which means much lower monthly payments.

While credit card debt is frequently the focus on those who opt for nonprofit debt management or other nonprofit debt consolidation, other forms of unsecured debt can also be included:

• Department store and other retail credit cards
• Medical bills
• Unsecured personal loans
• Payday loans

Debts Not Eligible for Consolidation

Secured debt – a mortgage, auto loan, or any loan attached to property or other collateral – cannot be included in a nonprofit debt consolidation. Income taxes and most student loans also are not eligible.

Why Work with a Nonprofit Debt Consolidation Company?

Nonprofit credit counseling agencies are required by law to act in clients’ best financial interest. Counseling is free, and there’s no obligation after counseling to enroll in a program.

Companies that offer nonprofit debt consolidation, like InCharge Debt Solutions, are 501c (3) nonprofits and are accredited by the National Foundation for Credit Counseling (NFCC). Their mission is to help clients find debt relief. Solutions are based on your financial situation, not on selling products or programs for profit.

Counselors are trained to educate consumers on how to manage money, as well as to review all the options available for a client to manage or eliminate debt. You won’t be turned away because of bad credit, and you definitely won’t be judged for your credit status, or how much debt you have. The counselor will give you a perspective on your financial situation and help you create a strategy to reduce or eliminate debt and improve your credit.

Counselors will go over your income, expenses and debt; help you create a budget; discuss how to cut expenses, like reducing your mortgage payment or rent; give you tips on how to manage your money so you can pay your utility bills and feed your kids.

The counselor will also explain debt consolidation options, including debt management plans, debt settlement (including nonprofit credit card forgiveness), or even filing for bankruptcy. They’ll point you to free financial education and resources, and, if bankruptcy is the answer, will refer you to a bankruptcy attorney.

Requirement for Nonprofit Credit Consolidation Programs

Nonprofit credit consolidation programs must meet strict standards for nonprofit credit counseling and debt management agencies set by federal law. NFCC agencies are accredited through the Council of Accreditation, which reviews agencies to make sure they are meeting those high standards, which are required to maintain NFCC membership.

Standards for nonprofit debt counseling agencies are:

• Annual audits of operating and trust accounts
• Must be licensed, bonded, and insured
• Must offer and support a variety of consumer education programs
• Must comply with consumer disclosure requirements
• Debt management programs must include a detailed review of the client’s current and prospective income, as well as current and anticipated financial obligations
• Clients’ payments must be disbursed to creditors on behalf of the clients at least twice a month
• Clients must be offered a variety of deposit options, including electronic methods, and immediate correction of improper posting
• Every client receives counseling, including an assessment of how they got into financial trouble and a written comprehensive financial action plan
• Clients receive a statement at least every quarter.

What that means for you is that the nonprofit debt consolidation agency must be up-front and not attempt to sell you products but review all options. You’ll be supported throughout your relationship with the company.

Your initial counseling session is free and if you enroll in a debt management plan, the enrollment fee and monthly cost are low. The average InCharge monthly fee is $33, which is part of your one monthly payment, and the initial enrollment fee is $75.

Nonprofit credit counselors will focus on the specifics of your finances and work with you on a solution that lowers interest rates and fits your budget.

You can speak with a certified credit counselor by applying online or calling the number on this page.

What the Best Nonprofit Debt Consolidation Looks Like

If you opt for some form of nonprofit debt consolidation after speaking to a counselor, be sure, no matter what the option, it has these features:

• One fixed monthly payment
• Lower interest rates than what you pay on credit card debt
• Someone who can work with your creditors on lowering interest rates
• Someone who will evaluate and understand your financial situation and offer further education, resources, or counseling to deal with specifics like bankruptcy, housing issues and student loans
• Offers an online account that allows you to track payments, balances, and interest
• Is a way to pay off your debt faster than making minimum payments
• Doesn’t further harm your credit

Nonprofit Debt Relief vs. For-Profit Debt Relief Companies

If you’re overwhelmed with debt, an “easy solution” may be tempting. Keep an eye out for ones that make huge promises but may end up costing you more money in the long run. The debt consolidation and settlement industry are rife with for-profit companies that are looking to take advantage of your situation.

There are many differences between nonprofit debt relief and for-profit debt relief agencies.

Nonprofit Debt Relief:

• Free credit counseling, including budgeting help, educational resources and more.
• Counselor discusses all debt-relief options including debt management, debt settlement (both for-profit and nonprofit), debt consolidation and bankruptcy.
• Debt-relief options offered by the nonprofit are free or low-cost.
• No advance fees for debt settlement, consolidation, or reduction services.
• Agencies are NFCC certified 501(c)(3) nonprofit debt relief organizations.

For-profit Debt Relief:

• Selling products in order to make a profit, which costs you money.
• May ask you to stop paying your creditors (this will further damage your credit and may cause your accounts to go into delinquency and collections).
• No guarantee that creditors will agree to lower interest rates or settlement.

Debt-relief agencies are not allowed to make promises that they’ll remove negative information from your credit report. They’re not allowed to guarantee all your debt will go away. If a debt settlement company urges you to get a new identity or advise you to apply for an Employer Identification Number to use instead of your Social Security number (which is illegal), walk away.

The Consumer Finance Protection Bureau has a state-by-state database of debt relief complaints. The Better Business Bureau and Federal Trade Commission also keep lists of fraudulent companies and scams. Also check with your state attorney general or consumer protection bureau to make sure it is licensed in your state.

USA.gov has a searchable list of state consumer complaints and attorneys general offices.

What About Nonprofit Debt Management Programs?

If you have a lot of credit card debt, you’re having trouble making payments and your credit score is suffering, the best option may be a nonprofit debt management program.

A DPM lowers high interest rates to about 8%, making monthly payments much lower. The program can eliminate your credit card debt in 3-5 years. It is not a loan – it’s a way for you to make on-time payments and pay down the entire balance of your credit cards. That means your credit score will quickly improve as you make on-time payments and pay down your balances.

A counselor at a nonprofit debt management agency calculates what amount monthly payment would eliminate your credit card debt in 3-5 years, depending on what you owe and your income. The nonprofit debt management agency works with your creditors to lower interest rates. You make a fixed monthly payment to the agency, and the agency in turn pays your creditors.

To qualify for a DMP, you must have enough income to pay your living expenses (housing, food, utilities, transportation, etc.), as well as the monthly payment to the agency. Your credit score is not a factor.

You will have to pay a setup fee of $75, as well as a monthly fee, included in your monthly payment, of $30-50.

You can finish the program early if you come up with the money to pay off the debt. You can also leave the program at any time, though your interest rates will likely go back to what they were before you enrolled.

So, the benefits of nonprofit debt management programs are:

• One fixed monthly payment
• Lower interest rates, which means lower payments
• Eliminate debt in 3-5 years
• Improved credit score

What About Nonprofit Debt Settlement?

If you have overwhelming credit card debt, but don’t have the income to pay it off, you may qualify for nonprofit debt settlement. Also called Credit Card Debt Forgiveness and Less Than Full Balance, the program allows you to pay 50-60% of your credit card balances, with the rest forgiven. Unlike for-profit debt settlement, there is no 2-3 year waiting period while the company negotiates with creditors. With the nonprofit, version, lenders agree upfront to accept 50%-60% of what is owed to settle debt. You make 36 fixed monthly payments, and no interest is charged during the repayment period.

To qualify and remain in the program, you must:

• Not have made a credit card payment in 180 days
• Make fixed payments for 36 months (you can pay it off early, but you can’t extend it)
• Make all payments on time

A limited number of banks have agreed to take part in the program, which means it may be hard to find a nonprofit credit counseling agency that offers it. InCharge is one of those companies, offering a Credit Card Debt Forgiveness program.

For-Profit Debt Settlement

For-profit debt settlement is similar to nonprofit debt settlement in that you pay less than what you owe, but that’s where the similarities end.

With for-profit debt settlement, you make monthly payments to the company, which puts the money in an escrow account. When the account reaches an agreed-to level, the company contacts creditors to negotiate payoff amounts. Unlike nonprofit credit card forgiveness, creditors do not already have an agreement with the company, so they may not agree to settle.

The waiting period can take 2-3 years as the account grows, and the company will ask you not to make payments on your cards. Nonpayment will have a negative effect on your credit score, since on-time payment is a major factor in scoring. The balances will continue as interest and late fees continue to build up. Collection agents will also continue to call until a settlement is reached.

The debt settlement plan will stay on your credit report for seven years.

Seek Nonprofit Credit Counseling

Debt consolidation counseling from a nonprofit credit counseling agency can be the first step toward getting out from under a mountain of debt, getting your finances in order and strengthening your credit.

There is no downside to talking to a credit counselor, like those on hand at InCharge Debt Solutions. The session is free, as well as free of judgment. The counselor’s role is to review your finances, help you create a budget that can work with you, and review nonprofit credit consolidation options. They’re not looking to sell you a product but are required by law to give you advice that’s best for you and your financial situation.

They’ll review nonprofit debt management to determine if your income and expenses balance out enough that you can afford a fixed monthly payment for 3 to 5 years that will eliminate your credit card and other unsecured debt.

They’ll also review whether you need, and qualify for, nonprofit debt settlement. If you can’t afford to make your credit card payments, this may be a viable option. They’ll discuss the differences between nonprofit debt settlement – credit card forgiveness – and for-profit debt settlement.

They’ll also explain the impact not making credit card payments, or only making minimum payments, will have on your finances and credit score. That impact will include balances that grow because of late fees and interest, as well as collections calls.

They’ll also explain bankruptcy and what tools you need to manage your finances yourself.

Whatever the solution, InCharge Debt Solutions can help you find the best solution to eliminate the debt that’s keeping you from getting ahead financially.