Nonprofit Debt Consolidation: Is It Right for You?
Written by
Kristopher Kane
Edited by
Jenna Klaverweiden
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
If you’re carrying a large amount of debt spread out across several credit cards and other loans, you’re not alone. Most Americans carry some credit card debt, and the amount of debt the average household is dealing with has been steadily increasing. In the last quarter of 2023, credit card balances went up by roughly $50 billion alone, for a grand total of $1.13 trillion. That’s a lot of debt — and a lot of worry.
You may have heard about nonprofit debt consolidation, but you might be wondering whether it’s the right move for you. Keep reading for more information about nonprofit debt consolidation, including how it works, some of the downsides, and whether or not this might be one solution to help you manage — and get out of — debt.
What Is Nonprofit Debt Consolidation?
According to Debt.org, nonprofit debt consolidation “combines your debt into one manageable monthly payment, often through a debt management plan.” It aims to eliminate your unsecured debt through an affordable monthly payment.
With nonprofit debt reduction, you’ll be dealing with organizations that are legally mandated to help you manage and clear your debts without profiting from the arrangement. While there are some setup and monthly fees, they are used only to cover necessary costs. Nonprofit debt consolidators can’t sell you products or charge fees or interest that would allow them to make a profit.
Is a Nonprofit Debt Consolidation Program a Good Idea?
Nonprofit debt consolidation might sound like a promising solution, but it’s not a good fit for everyone. It’s important to consider your total debt, the amount of interest you’re currently paying and the amount of money you have left over each month you could use to pay it down more quickly.
Weigh the advantages and disadvantages of nonprofit debt consolidation carefully before making a decision. If you’re carrying only a small amount of debt (or if your debt is mainly from a mortgage or a car loan — which are not eligible for nonprofit debt consolidation), then debt consolidation might not help that much.
However, if your debt has gotten to the point where you’re having trouble making the minimum payment each month or are missing payments entirely, you’ll want to think about this option just to get away from the overwhelming feeling that unmanageable debt can cause.
Does Everyone Get Approved for Debt Consolidation?
Nonprofit debt consolidation may not even be available to everyone. Though it may seem like a cruel reality, approval for debt consolidation programs relies on the same range of factors credit card and loan applications use.
These include things like your credit score, your debt-to-income ratio and a lender’s opinion on your likely ability to make regular payments on the consolidated loan. If you’ve been struggling to make payments on your current debts, you’ll probably find it challenging to secure approval for a consolidation loan.
Do Consolidations Hurt Your Credit?
If you’re already struggling with your credit, the last thing you want to do is take steps that will negatively impact it. In the short term, applying for a new loan can cause a small drop in your credit score because the lender will pull your credit report in what’s known as a “hard inquiry.” This will show up on your credit report, and you’ll typically see your score drop a few points.
The good news is that this is usually temporary. Making consistent payments on your new consolidation loan usually boosts your credit within a few months.
Remember, as with your existing debt or credit cards, any late or missed payments on any loan will lower your credit score. Consolidating your debt is going to be helpful only if you’re sure you can keep up with the new loan payments.
How Do I Know If I Qualify for Debt Consolidation?
Though different lenders have different criteria, they will usually look for things such as a steady income, a credit score in the fair-to-good range and an acceptable debt-to-income ratio. While some nonprofit debt consolidators may have more lenient requirements, not all do. If you’re unsure whether you qualify, consider seeking professional financial advice.
A credit counselor or financial advisor can help you understand your options and decide whether debt consolidation is the right choice for your needs.
Other Important Things To Know About Debt Consolidation
One of the most important distinctions to make when considering debt consolidation is that it’s not the same as debt relief. A debt relief program typically involves the lender negotiating with your debtors to reduce the amount of debt, the interest rate or both.
Nonprofit debt consolidation is not a magic bullet. It requires commitment, the discipline to spend within your means and a stable income.
While debt consolidation might be a part of your financial plan, don’t overlook the importance of budgeting, living within your means and building an emergency fund. Nothing is more valuable than your peace of mind.
More From GOBankingRates
