If you're feeling overwhelmed by bills, you may be considering using the services of a non-profit debt consolidation company. You will have no trouble finding a company to handle the process for you, but evaluating all of the companies and determining which is the best for your situation will take some time. Before you sign anything, there are some things you should know about non-profit debt consolidation.
Function
Non-profit debt consolidation companies negotiate with your creditors to lower the interest rates and fees on your accounts or accept a lower amount for payment than what is currently due. Consolidation covers unsecured debt, which is debt that is not connected to a product or property. Unsecured debt includes medical and credit card bills. Secured debt, which applies to mortgages and auto loans, cannot be consolidated.
After consolidation, you make one payment to the consolidation company to cover all of your consolidated accounts. The new payment will usually be lower than the combined amounts you paid prior to consolidating your debts. The debt consolidation company then pays each of your creditors.
Features
A credit counselor will meet with you, evaluate your debts and give you an estimate of how much money you will be able to save by consolidating your debts. You will also be given advice on debt management, finances and budgeting, as part of the process is not only reducing your current debt but providing education on how you can better manage your money in the future.
Considerations
Even though you are working with a non-profit company, you will still be required to pay fees to begin the process and may be charged a monthly handling fee. In some cases, the set up fee will equal a monthly payment. You will want to speak to several companies and ask how much each charges for set-up and monthly fees. Find out how long the companies estimate it will take you to pay your bills and ask what will happen if you are unable to make a monthly payment.
Misconceptions
Your creditors may consider an account to be in collections even if they have agreed to accept a lesser amount as payment. This will be reported negatively to the credit reporting agencies and will affect your ability to be approved for credit in the future.
Good credit counselors can not only negotiate to reduce the amount you will have to pay, but can convince your creditors to issue a positive report as long as they receive payments. Make sure that any company you are considering can successfully negotiate a positive credit report before you decide to work with them. Your goal is to pay off your debt and increase your credit score, which can't be done if debt consolidation will damage your score.
Warning
Ask to see the non-profit company's 501(c)(3) certificate. Some for-profit companies claim to be non-profit in order to draw customers. A legitimate non-profit organization will have this certificate and will be able to show it to you.
Check with the Better Business Bureau before signing on with a non-profit debt consolidation company. If you find that consumers are complaining that their debt is not decreasing due to the percentage of the payment that a consolidation company is keeping, steer clear of this company. Some companies fail to make payments to creditors on time, damaging their clients' credit. Because your credit history is at risk, you will want to choose wisely when considering non-profit debt consolidation.
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