At a Glance

Borrowers suffering under a mountain of debt can sometimes need assistance finding the path to debt freedom. And non-profit debt consolidation companies can help. These companies connect borrowers with credit counselors who work to negotiate more favorable terms and manage payments for the borrower at low or no cost.

In this article, you’ll find:

What is Non-Profit Debt Consolidation

Non-profit debt consolidation differs from traditional debt consolidation, which uses a personal loan to pay off debt. Non-profit debt consolidation companies, or credit counseling agencies, help manage the process of paying down unsecured debts, like credit cards, personal loans, student loans, and retail store cards. Instead of paying debts directly, payments are funneled through the debt consolidation company. Then, the credit counselor will work with creditors directly to negotiate better terms and make payments on time on behalf of the borrower.

How Non-Profit Debt Consolidation Works

There are several steps in the process of consolidating debt through a non-profit agency. If you are considering pursuing this path, follow these five steps:

Research Reputable Agencies

“The best credit counseling agencies will offer educational content and many other services free of charge. Search the Better Business Bureau to confirm the company’s nonprofit status, and be sure to watch out for debt consolidation scams, such as companies that want payment upfront, are pushy, or are unclear about their services.

You can also use our tool below to easily find an approved agency near you. This tool sources data from The United States Department of Justice’s list of approved agencies.

Sign Up With a Credit Counselor

Once you sign up with a credit counseling agency, you’ll be assigned a credit counselor. These individuals are certified in consumer credit and money management, and they take a holistic view of your finances. That means outlining all of your debts and what you’re currently paying. The counselor can then work with you to create a realistic plan to help you pay off those debts.

Make a Monthly Payment to the Agency

Your credit counselor will be responsible for making payments to your creditors. By managing the payments behind the scenes, the agency commits to paying each creditor on time until all bills are paid in full. These timely payments can help boost your credit score, similar to if you’d taken out a debt consolidation loan with bad credit.

Credit Counselor Negotiates With Creditors

As part of a non-profit debt consolidation program, your credit counselor may negotiate with creditors. They’ll seek to lower interest rates, waive fees, or even stop the collections process. If approved, the agency may pass those savings on to you.

Receive Ongoing Support and Education

You may need to pay the agency a fee for the service of managing debt payments, but other resources are generally free to everyone. That may include educational materials, online tools, and workshops, which it is wise to use to become more financially literate and avoid needing debt services in the future.

When it Makes Sense to Use Non-profit Debt Consolidation

Non-profit debt consolidation may be a good idea for those who need a safe option for debt elimination. Since these companies aren’t looking to turn a profit, they tend to be more reliable and reasonable than some for-profit debt settlement or debt relief companies.

Debt relief differs from debt consolidation in that it attempts to settle debts for less than the current amount due. But debt consolidation companies help pay off debt faster by streamlining monthly payments and lowering the interest rate. Non-profit agencies also differ from debt relief companies in that they can assist borrowers in debt consolidation without upfront fees, sales pitches, or vague promises.

How do Non-Profit Credit Counseling Agencies Make Money?

When non-profit debt consolidation companies are working to alleviate debt and provide education for free, you might get a bit suspicious about how they make their money. Many reputable agencies make money from donations, creditors, and government grants. But keep in mind they may also charge a fee to assist with the debt negotiation and repayment process.