At a Glance
Debt consolidation is when you combine multiple debts, like credit cards or other loans, into one new debt to essentially pay for the old debt. When looking for the best debt consolidation program, the government recommends using a credit counseling service that’s accredited by either the National Foundation for Credit Counseling (NFCC)1 or Financial Counseling Association of America (FCAA).2
How the government helps with debt
The government doesn’t sponsor debt relief programs like debt consolidation companies directly, but it does offer some forms of financial help.
- Regulation: The Federal Trade Commission (FTC) has requirements for debt settlement companies and debt collection agencies. The Consumer Financial Protection Bureau (CFPB) accepts complaints against financial companies trying to treat customers unfairly.
- Military servicemember assistance: The Servicemembers Civil Relief Act lets veterans and active-duty military members qualify for lower interest rates on credit cards and mortgages, and offers other financial protections.
- Debt forgiveness: Government debt, as opposed to debt owed to a private company, can be forgiven. You may be able to settle your tax debt for less than you actually owe the IRS. You can also have student loan debt forgiven, canceled, or discharged, depending on your situation.
- Interest deductions: Certain types of interest are tax deductible, including interest on student loans, mortgages, and medical bills.
- Federal Housing Administration (FHA) loans: Mortgages insured by the FHA have lower down payments than other loans. If you have this type of mortgage, you could also consider an FHA streamline refinance.
What are nonprofit debt consolidation programs?
With nonprofit debt consolidation, agencies offer free credit counseling sessions then provide choices for how to solve your specific debt problem. Options include debt settlement plans, debt consolidation loans, debt management programs (DMPs), and in a worst-case scenario, bankruptcy. These solutions allow you to eliminate debt without taking out a loan.
Nonprofit vs. for-profit debt consolidation organizations
Nonprofit debt consolidation organizations face stricter rules and are held to higher standards by the government than for-profit companies. The top nonprofit companies belong to the NFCC and are accredited by the Council on Accreditation (COA).3 NFCC members must abide by the COA’s best practices, including:
- An annual audit of operating and trust accounts
- Being licensed, bonded, and insured
- Providing consumer education programs
- Meeting FTC consumer disclosure requirements
- Making services available to everyone, regardless of their ability to pay
Rules for nonprofits
Nonprofit organizations must follow several rules and guidelines to maintain their 501(c)(3) status.
- Activities shouldn’t benefit anyone affiliated with the organization, like board members, directors, etc. Activities also should not serve private interests
- Lobbying has to be tempered; organizations cannot back political candidates
- Though not taxed, nonprofits must report certain information to the IRS annually, per the Internal Revenue Code
- Can’t earn unrelated business income in excess
Knowing the difference
There are plenty of companies out there looking to take advantage of consumers. But there are ways to tell the difference between nonprofit debt consolidation organizations and other debt-relief companies.
- All NFCC affiliates are nonprofits
- Nonprofits won’t have upfront fees
- Check with the Better Business Bureau4
- Make sure the company is licensed in your state by checking with the attorney general or consumer protection bureau
- Thorough credit and budget counseling are completely free through nonprofits
- Quick fixes are red flags
Qualities that the best nonprofit debt consolidation companies have
Look for these qualities in a debt consolidation company:
- Credit bills are combined into one payment, making repayment easier
- Ability to pay off debt faster
- Lower interest rates, no matter your credit score
- No more collection calls
- A realistic, easy-to-follow budget/financial plan
- A low monthly fee, typically $25-50, to maintain and handle your account. This fee can be waived if you’re unable to afford it.
- Autopay deducted directly from your bank account to avoid late payments
- Transparency across the board: fees, eligibility, etc.
Alternative debt consolidation options
Other options for debt consolidation include the following: