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Some consumers make the mistake of conflating non-profit and for-profit debt consolidation, assuming that there couldn’t be that much of a difference between them. In reality, the difference is significant and should be considered when selecting the right consolidation program. In essence, non-profit debt consolidation is a company that is out to help consumers conquer debt, not make a profit. On the other hand, for-profit debt consolidation companies will also help you with your debt, but their primary goal is to make money while doing so. The efficacy and strategies of these types of debt consolidation vary widely, and we will discuss this and other differences between the two in more detail.
Non-Profit Debt Consolidation
Non-profit debt consolidation is actually somewhat of a misnomer because most debt consolidation programs are for-profit operations. Usually, consolidation companies that claim to be non-profit are just using it as a deceptive marketing tool to dupe consumers into thinking their fees will somehow be lower. Such companies are not legitimate non-profit enterprises, and thus are running little more than a scam. Truly non-profit organizations that offer debt assistance typically come in the form of credit counseling services or debt management companies. They cannot offer consolidation per se, but they do help consumers negotiate with their creditors for lower rates and more reasonable monthly payments. Credit Counseling services are available for little to no cost in most communities. Here are some examples of what a non-profit debt assistance program can offer:
- Debt management plans - credit counselors work with your creditors to lower your monthly payments and establish a repayment schedule.
- Money and credit management - the agency gives consumers advice on budgeting, using credit wisely, and setting financial goals.
- Bankruptcy counseling & education - people considering filing for bankruptcy are educated about their alternatives and can complete the mandatory pre-discharge counseling if they decide to file.
For-Profit Debt Consolidation
The biggest difference between for-profit debt consolidation and non-profit debt management services is the cost. A debt consolidation company normally charges a one-time commission that is the same amount as your first monthly payment, which could be hundreds of dollars. These services also charge either a per-creditor or flat fee each month to cover administrative costs. This administrative fee ranges from $10-$40 on average. By contrast, a non-profit company might charge you a one-time fee of $30-$50 and a nominal per-account fee (most companies charge $3-$5). Another important difference between non-profit and for-profit consolidation is that for-profit services have established agreements with most major creditors that enable them to pass on reduced interest rates to their customers. Non-profit agencies have no such agreements and thus might not be as effective for some consumers as for-profit debt consolidation.
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