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Non-Profit Debt Consolidation Companies — Saviors?

Written by: Kristy Welsh

Scottsdale, AZ - Even if you're not overwhelmed by debt, you most likely have seen or heard ads promising the overburdened nothing less than salvation from their debt woes. "Overwhelmed by debt? Combine all of your payments into one you can afford!", is a common slogan. In the same breath, the ads often mention proudly the non-profit status of the organization. Are these companies the saviors their carefully crafted images suggest?

Kristy Welsh, author of the book "Good Credit is Sexy", says she became suspicious when a reader of her website, on which her book is based, wrote to complain that his creditors had not received any money after two months of payments totaling $1200. Welsh called the company and obtained details of the program.

Non profit debt consol companies collect revenue through a 'donations'. But as many people have complained to Welsh, the Better Business Bureau and state attorney generals, the consumer is unaware that a portion of their money goes right into the company coffers. "I've had some people tell me they've paid into the program for a year and their debt hasn't decreased at all, says Welsh." In addition, many people who enter such programs with perfect credit have seen their credit rating destroyed due to the late payments of these companies. And the money from consumer 'donations"? One legal way for company executives to benefit from these 'donations' takes the form of large executive salaries. A recent investigation by Business Week found two companies had paid their executives over $300,000 a year.

Welsh says consumers can get often the same or better deal by negotiating down the payments and debt on their own, but it takes work. "As in weight loss, people want a magic pill to take instead of having to diet and exercise. Similarly, people just want to hear that they can hire a company to miraculously reduce their debt and make it go away." Ready to work a little to get rid of burdensome debts?

1. Settle with your credit card company to pay an amount for less than you owe. Most of them have established programs that will offer you a deal to settle for 75% - 50% of the debt. Your credit report will show the accounts as "settled", which is not a good listing, and will reduce your credit score, but you will have them off your back, and you have the chance to rebuild your credit.

2. In some cases, if you are a good negotiator, along with a substantial settlement, you can get the company to delete the listing from your credit report or convert it to a good listing. Remind the company rep that you only have a certain amount of money and you are only going to pay creditors that agree to convert the listing to a positive one.

3. Simply don't pay your debts. Not paying is a bad option; but it can be better than bankruptcy. Make no mistake, with this option your credit will be severely impacted; you will also have to deal with the possibility that the creditors will call you repeatedly and make answering the phone an unpleasant experience. A creditor could also get a judgment against you, but the chances, however real, are slim. The negative accounts will drop off your credit report in 7 years.