Are non-profit debt consolidation companies legitimate? How can they help you with your debt problem? Are you going to get ripped off? Find the answers to these questions below.
If you aren't a fly fisherman, you probably don't know that a double surgeon's loop, blood, and trilene are all types of fishing knots. In the same way, you may not know much about non-profit debt consolidation companies until you're caught in the throes of a debt problem.
Two sides to every tale
Non-profit debt consolidators are in the business of helping consumers reduce debt. How they do this, and why, are topics that have prompted considerable debate among consumers, their advocates, and the consolidators themselves. There are several factors that fuel the flames of these debates, including:
- As in every business sector, there are entities that abuse the system. Some non-profits have taken advantage of their customers by deliberately failing to explain the fine points of the service they provide.
- Consumers sometimes read too much into the word "non-profit." Borrowers shouldn't assume that the non-profit debt consolidation company offers its services free of charge.
- The stories of corruption and consumer abuse have gotten more news coverage than the debt consolidation companies who have fulfilled their promises to consumers.
Non--profit debt consolidation companies
Non-profit debt consolidators typically step between a borrower and her creditors to coordinate the debt payoff. The exact services provided vary by company, but may include:
- Accepting consumer payments and divvying those payments up among creditors
- Counseling the consumer on budgeting and money management
- Negotiating lower interest rates and/or better terms with creditors
Problems can arise when the fees charged by the consolidator are not clear. Non-profit consolidators collect fees for their services, usually as part of the consumer's monthly debt payment. If the borrower agrees to send $400 per month to the consolidator, it may keep a percentage of that amount before sending the rest to creditors. In some cases, the consolidator might even hold back several months of payments to cover the fees before sending any money at all to creditors. This practice causes more problems for the consumer than it solves.
Ask questions to head off misunderstandings
Consumers are advised to ask many questions before contracting with a non-profit debt consolidator. Specifically, borrowers should clarify the amount of the fees, and how they're collected. These may be labeled as "donations," so questions should be worded carefully to avoid misunderstandings. For example:
- Do you collect fees or donations?
- What percentage of my monthly payment goes to my creditors?
- Can you provide a schedule of my payments and how the money is allocated until the debt is paid off?
Now, when you go fishing for a solution to oppressive debt, you know the main advantages-and pitfalls-of working with a non-profit debt consolidator. Make sure that the one you reel in is the right one for you.