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How Nonprofit Debt Consolidation Works


Debt consolidation is a broad term that encompasses a number of different strategies, all with the goal of allowing borrowers to pay off their debts in a manner that is both easier to manage and less expensive over the long run.

This tactic is especially worth exploring further for borrowers currently in the throes of juggling more than one high-interest credit card account each month, as this approach tends to be the most burdensome and costly.

Two different possible paths toward debt consolidation include for-profit lenders and non-profit credit counseling organizations. Keep reading to learn more about how the latter, nonprofit debt consolidation, works so you can decide whether it may be a viable option for you.

How Nonprofit Debt Consolidation Works

Another term for nonprofit consolidation you may have heard is debt management. Instead of taking out a loan from a private lender, this route involves working with a not-for-profit credit counseling agency to repay your debts.

A credit counselor will communicate with your creditors on your behalf, trying to get them to accept more favorable terms of repayment provided you hold up your end of the bargain — making consistent monthly payments to the credit counselor so they can pass these funds onto your creditors.

Say you have five credit cards currently holding a balance each month. If you entered into a debt management program, you’d switch to making a single monthly payment to the nonprofit consolidation organization. The company will pay your creditors according to the terms of the agreed-upon deal.

Lenders are often willing to make certain concessions, like lowering interest rates or canceling late fees, for borrowers who are enrolled in debt management plans.

Nonprofit Debt Consolidation: Additional Considerations

There are a few things to know about nonprofit debt management before signing up. The first is that you can expect the process to take years — often somewhere in the ballpark of three to five years. This is not an instant solution to debt woes but rather a sustained effort at reducing debts in the most economical way possible.

Another thing to note is that, while nonprofit companies are different than private lenders, these programs are not necessarily free. There may be start-up fees and monthly maintenance fees involved, so check over the fine print before enrolling to make sure you’ll still be saving money once all expenses have been calculated.

Just like when you’re considering any consolidation solution, it’s important to choose the right partner. The most trusted debt consolidation companies will go above and beyond pressuring you to enroll in a management plan; they will first go over your financial situation with you in detail, offering advice on topics like budgeting and handling debt. Most nonprofit credit counselors offer a free initial session in which you can meet with a counselor and discuss your challenges and goals — with no obligation to continue working together unless you choose to proceed.

Reputable programs will also supply you with all the information you need up front to make an informed decision. Beware of companies that try to rush the informational stage or insist upon gathering your personal data before offering information about their services.

A good way to get a sense of how a nonprofit debt consolidation program works is to read online reviews from current and past customers. This will provide helpful insight into what to expect as well as the reputation of a certain company.

Put simply, nonprofit debt consolidation entails working with a credit counselor to come up with a realistic debt repayment plan where they facilitate payment between you and your creditors for the duration.


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