Key Takeaways
- A non-profit debt management program helps you pay off unsecured debt, such as credit card or medical bills.
- The non-profit credit counseling agency negotiates with your creditors and creates a repayment schedule that works with your budget and income.
- You make one payment per month to the non-profit agency, which forwards agreed-upon amounts to your creditors.
- Most participants find themselves out of debt within three to five years.
What Are Non-Profit Debt Management Programs?
A non-profit debt management program (DMP) is a personalized payment plan created and administered for you by a not-for-profit credit counseling agency. The goal of this DMP is to help you pay down your debt without having to take out a loan. A non-profit DMP will eliminate your debt by consolidating all of it into a single monthly payment, often getting you a lower interest rate from your creditors.
Debt can be secured or unsecured. Secure debts are backed by collateral, which can be repossessed if you fail to pay the debt. Examples of secured debt are mortgages and car loans. Unsecured debt has no collateral attached to it. Examples include credit card debt, retail debt and medical debt. DMPs help you pay unsecured debt.
There are non-profit credit counseling agencies across the country. The National Foundation for Credit Counseling (NFCC), the Financial Counseling Association of America (FCAA) and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) are all professional organizations that certify and connect vast networks of individually run non-profit credit counseling agencies.
Common Eligibility Requirements
To qualify for a non-profit debt management program, you must demonstrate that you earn enough income to pay for your daily living expenses (food, housing and transportation) and the non-profit agency’s monthly fee. If you’re in debt and struggle to pay for groceries, rent or utilities, a debt management program might not be where you need to start.
Non-profit debt management agencies charge low fees, which cover their administrative expenses. There’s a fee for an initial consultation (usually around $75), then a monthly ongoing fee ($30 to $50).
Non-Profit vs. For-Profit Debt Management Programs
The primary difference between non-profit and for-profit debt management programs is that the latter is a business trying to generate revenue, while the former is a service business that seeks to cover its costs while trying to help you get out of debt.
For-profit debt management programs can work for you, but they come at a higher cost. As long as you understand their fees and how they will be collected, there’s nothing wrong with choosing a trusted for-profit debt management program if you believe it will help you pay off your debt in a timely manner.
Some for-profit debt management programs have you pay into an escrow fund, which they then use to negotiate with your creditors to reduce the overall amount of your debt. This approach can leave you open to collection calls and have a negative impact on your credit rating.
Non-profit debt management programs offer widespread financial education and resources, in addition to a tailored payment schedule. Their goal is to help you understand how you accrued your debt, offer guidance advice and create a budget to help you avoid future debt. Plus, fees are usually much lower with non-profit credit agencies.
How Non-Profit Debt Management Programs Work
When you enroll in a non-profit debt management program, the credit agency will assess your situation to understand the size and scope of your debt and your income. They’ll create a payment plan that fits into your budget. Typically, the agency will consolidate your debts, leaving you only one payment a month. The agency likely will negotiate reduced interest rates on your behalf.
Basically, the non-profit acts as a middleman. You make monthly payments to the agency, which passes them along to your creditors. The agency usually designs your plan to pay off your debt within three to five years. Although you likely will have to stop using credit cards through the process, you’ll emerge debt-free in the end. And you’ll have improved your credit score after making consistent on-time payments.
Benefits of Working with a Non-Profit Debt Management Program
By bundling your debt and simplifying the payment process, the agency relieves you of the burden of having to remember how much is due, to whom and when. Instead, you make a single fixed-amount payment to the credit counseling agency on a set schedule. These regular payments help you improve your credit score if your debt damaged it, and you’ll know from the outset how long payments will last.
Non-profits will also negotiate with interest-charging creditors (like credit card companies) to reduce the interest fees on unpaid balances. Credit card interest rates can range from 18% to 35%. Non-profit credit counseling agencies often convince companies to accept 8%, saving you money and enabling you to eliminate your debt faster.
Non-profits also offer the bonus of financial counseling and education. The goal of a non-profit credit counseling agency is not to make money but to improve the financial literacy and standing of the community at large. A non-profit will help you understand the patterns and processes that led you into debt in the first place and help you devise strategies to ensure you have a more stable financial future.
Finally, a credit counseling agency’s non-profit status assures you of two things: non-punitive fees to cover costs rather than create profit and complete financial transparency.
How To Choose a Non-Profit Debt Management Program
If you’re looking for a non-profit debt management program, start with the FCAA or the NFCC. The national organizations can direct you to local and state providers. The U.S. Department of Justice also maintains a list of approved non- and for-profit credit counseling agencies, which you can filter by state or language.
Do your research. Compare different non-profit debt management programs to evaluate their fees and organizational transparency. Read reviews and feedback from past clients to gauge their commitment to the financial education and support of their clients. Crowdsourcing through social media can help, too.
Standards To Look For
When looking for a non-profit debt management program, make sure the credit counseling agency you choose is legitimate.
- Accreditation
- The credit counseling agency should have accreditation from the NFCC or the FCAA. These organizations establish standards for and have oversight of credit counseling operations, and continually refine consumer protection guidelines. They ensure credit counselors are properly trained and certified.
- Reputation
- Membership in (or a high rating with) the Better Business Bureau means your credit counseling agency has a commitment to honesty and integrity. You’ll also want to check with the Federal Trade Commission (FTC), which pursues fraudulent or extortive debt relief agencies and maintains a list of companies to avoid.
- Non-Profit Status
- Credit counseling agencies that maintain 501(c)(3) status with the IRS are considered charitable organizations that exist to promote the public good. While tax-exempt, non-profit agencies must maintain and communicate transparency in all their financial practices. By law, their annual tax filings are public record and are available from the agency, the IRS or other watchdog groups.
In addition to confirming the agency offers complete credit counseling and budgeting services for minimal fees, research its:
Other Resources
USA.gov posts and updates easy-to-understand information about federal services and programs. You can find information about debt and credit counseling here.The Federal Deposit Insurance Corporation (FDIC), the national organization created to maintain public confidence in the financial system, created its Money Smart program to increase your financial skills. With games, strategies and online tools, Money Smart can help you develop the financial knowledge to help you thrive.
