In other words, using the equity built up in your home to repay all of your unsecured debts.

Although these types of loan programs often include significant fees and can extend the amount of time to get out of debt, there is something more important to consider:

Debt consolidation loans work by converting your current unsecured debts into secured debt. More specifically, debt which is secured by your home.

What that means is that if in the future you fall behind on your payments you could risk losing your home. That kind of risk does not exist with your current unsecured debt.

If you have questions about your existing credit situation, and would like to learn more about getting out of debt, without bankruptcy, contact one of our professional debt negotiation specialists by clicking “Contact EFS” for a free consultation.

How Do The Non-Profit Debt Consolidation Companies Get Paid?

DO YOU KNOW HOW THE NON-PROFIT DEBT CONSOLIDATION COMPANIES GET PAID?

I guarantee you, it doesn’t all come from the $35 monthly fee that each person pays.  The non-profit debt consolidation companies get paid 8% of the money they collect for a major bank or credit card company.

That’s right, a majority of the income for the non-profit debt counseling, debt consolidation companies comes from the banks and credit card companies! 

For many years, the non-profit companies were paid 15% of what they collected and sent to the banks and credit card companies.  At that point, these non-profit companies were doing fine.  In fact, in the late 1950s, banks came up with the idea of having non-profit companies that would help people pay their debts back. 

Let’s look at this idea – if a “for-profit company” gives money to a “non-profit company”, the for-profit company gets a tax break.  That’s how it works!  So, if the banks can “donate” a portion of what they collect to a “non-profit debt collection company”, not only do they get income from the money collected, BUT they get a tax break for donating back to the non-profit company.  It really is a brilliant idea – for the banks and credit card companies. 

But, then there was a problem.  About 5 years ago, the banks and credit card companies decided to cut the 15% to 8% for reasons best known to them.  That means that the non-profit companies took a 45% pay cut!  

Can you imagine getting a 45% pay cut?  Maybe you have already experienced that and worse!  So, you know what it’s like to have such a cut in your income.  That’s what happened to the non-profit companies and they panicked!  How are they going to keep up their staff and their overhead if they just lost 45% of their income?

Well, they did some things that lead to a US Senate investigation on the Consumer Credit Counseling programs (the non-profit companies) in 2004. 

And the Senate found some very eye opening facts!

Debt Consolidation: Non Profit vs Profit

It’s important to define what non-profit means.

Per the Encarta Dictionary, non-profit means: “an organization that does not operate to make a profit.”

Ok.  So, what is a non-profit company’s objective?

To be a benefit to the community.  That means that they must be doing something that helps the community and is not looking to make a profit.

WHAT IS A NON-PROFIT THERE FOR

A for-profit company is there to benefit the owners and stockholders of the company.  They are selling a product or a service that is designed to bring in profits to the company.

The amount of money made by either type of company does not matter – both can make a lot of money.  It is their objectives that make the difference as well as how they account for their income and expenses.  Non-profit companies can have endless amounts of money in reserves.  They just can’t distribute it to owners or stockholders.  They must use it to expand their objectives.

But, the interesting thing about the non-profit Debt Consolidation companies is what they are willing to do and what they will not do to help you get out of debt.

For instance, did you know that if you have debt that has been purchased from a major bank or credit card company by a collection company, that the non-profit company will not be able to lower any interest rates or payments to that collection company?

Weird, isn’t it?  I’ll tell you why in my next article.

What is Debt Consolidation and is it for YOU?

TRUE OR FALSE: DEBT CONSOLIDATION IS THE “NON-PROFIT” COMPANIES THAT “HELP YOU” TO GET OUT OF DEBT? You’ve seen the ads on TV on how they will help to “lower your payment” and “help get you out of debt faster” and other eye catching stuff. To “consolidate” means to take a number of things, like credit cards, and make 1 payment out of them, thus, you consolidate your payments to 1 payment.  So what does that mean to you regarding your debt, and especially your pocket book?

THERE ARE BASICALLY TWO FORMS OF DEBT CONSOLIDATION:

1) Taking your credit card debt, taking out a second on your house and putting all the credit card debt on your house. That way, per the ads, you can “pretend” you are out of debt! Which of course, you aren’t. You just took the debt and rearranged it so you didn’t see it every month, so it looks like it’s all gone.

2) The “non-profit” debt consolidation companies. These are the other ads you see on TV and are basically companies that are set up to help you pay off your debts by lowering your interest rates and your monthly payments.

But, DO THEY REALLY DO ALL THAT?

Do you remember when 10% interest rates on credit cards seemed outrageous? Do you remember when 24% interest was only given by people we called, Loan Sharks?

Well, it looks like times have changed! Now, it’s the banks and credit card companies that have become the Loan Sharks.

The non-profit Debt Consolidation companies are touting the 9 – 10% interest rates like they are giving you the biggest gift possible so you can really get out of debt fast.

Really?

WILL DEBT CONSOLIDATION GET YOU OUT OF DEBT?

Did you know that after 40 years of being in business that 18% of the people that go into the non-profit debt consolidation companies actually get out of debt? That means 4 out of 5 people do not finish the program.

In 10 years of being in the Debt Negotiation business, I have found that the biggest reason people quit the non-profit companies is because they don’t see their balances go down enough to get them out of debt in 3 to 4 years.

Do you know how the non-profit companies and the banks and credit card companies work together? Check out the next article on the Debt Consolidation companies. You might be quite surprised!