Many consumers have plans of paying off their consumer debts and improving their personal finances. Unfortunately, debt elimination is easier said than done. With high interest rates and high monthly minimums, paying off debt can prove challenging. Using a nonprofit debt consolidation company can help eradicate your debt.
Nonprofit vs. Profit
There are two types of debt consolidation companies -- nonprofit companies and for-profit companies. Working with a nonprofit debt consolidation company is advantageous because these companies do not attempt to profit off your situation; any fees charged for their services are nominal and used to cover their costs, says the Non Profit Debt Consolidation website. Other companies without nonprofit status from the IRS tend to charge expensive fees, which can include an initial fee and a monthly fee.
How Debt Consolidation Works?
Nonprofit debt consolidation companies are not banks or lenders, so don't expect the company to issue a check to pay off your outstanding balances. These companies consolidate debt by combining your credit cards and loans into a single monthly bill. You provide them with information on the type of accounts and account numbers, and they'll contact your creditors to begin managing your expenses. After reviewing your accounts, they'll establish a monthly payment to pay your debts. You make this payment to the debt consolidation company and not your individual creditors.
Negotiating
Debt consolidation companies contact your original creditors to negotiate lower interest rates on the debt, which will reduce your monthly minimums. And if you're behind on payments, resulting in collection accounts and excessive late fees, debt consolidation companies work on your behalf to get these fees reduced or eliminated.
Counseling
Learning how to manage debt and credit can alleviate future problems. With this in mind, nonprofit debt consolidation companies not only help to eradicate your outstanding balances faster, they also offer credit counseling to teach you better habits to help improve your personal credit rating. Good credit habits include timely bill payments and careful debt management.
Benefit of Debt Consolidation
High-interest credit cards can take years to pay off, and debtors can pay hundreds or thousands in interest charges. Debt consolidation companies establish a payoff plan at the beginning of the program, allowing debtors to pay off their balances in four to six years, providing they don't add new debt.
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