Non-Profit Credit Card Debt Consolidation: What's in It for Them?

Non profit credit card debt consolidation companies may sound too good to be true. However, there are a number of non profit companies that provide their services to help consumers reduce debt. Many non profit companies are profitable, but they do not net any income, after expenses, at the end of the year.

Fees

Non profit does not mean free. When you contact a non profit consolidation company, you will receive a quote for interest and fees charged on the loan. They must charge these fees in order to avoid losses, due to inflation. They also must charge fees in order to comply with the IRS's definition of "lender." These fees may be lower than the fees charged by for-profit companies. Many times the fees are the same, or higher, than those charged by a for profit company. The difference is determined by the efficiency of a non profit expenses. 

Income

Non profit does not mean no income; rather, it means no net income. Any cash flow spent on expenses, such as business assets, salaries to employees and advocacy, is subtracted from the income. The figure must be zero in order for the company to maintain its non profit status. Ideally, the company will be very efficient with expenses. For example, they will pay employees less than private employers pay. As a non profit, the company must disclose its balance sheets. You can review the organization's accounting statements to determine income from services each year. Then, you can compare it to their expenses and determine where they spend all of the money.

Grant Money

Non profit organizations who do not earn a large income may receive government grants for their operating expenses. This type of organization can still afford to pay employees well, while keeping costs low. It is best to find a company that receives a good portion of its annual expenses through grant money. This will keep your fees low. It also means that the company is put through a number of federal, or state, audits. When government organizations provide grants, they monitor where and how the funds are spent so companies with federal funds are reviewed often.

They May Sell Your Debt

On the other end of the spectrum, there are non profit companies who turn around and sell your debt. They may package the debt into securities and sell them through third party providers. Investors can purchase your debt, and when you succeed in repaying the lender, the proceeds are disbursed to the investor. When a debt consolidation company does this, they usually have to charge you more for the service. A portion of your interest goes to the expense of taking on investors, and you will end up paying a number of middle-men with your interest fees.

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