At first glance, non profit debt settlement looks like an appealing option. As someone facing collection calls, letters threatening legal action or simply what seems like insurmountable debt, the thought of a helping hand who won't charge you an arm and a leg sounds perfect — but watch out: not all non profit debt settlement companies have your best interests in mind.

What Is Debt Settlement?

Debt settlement is when you or a third party negotiate with your creditor(s) to accept a lump sum payment smaller than your current total balance in lieu of ongoing monthly payments. If you have missed payments in the past, this option may be appealing to your creditors because they can be sure they'll get at least some money from you.

If you don't have a lump sum saved up to offer creditors, if saving has proven difficult for you, and if you'd rather trust a seasoned negotiator to work with your creditors on the amount, considering a debt settlement company may be a good option. A debt settlement company will set you up on a plan to make monthly payments to them which they will keep in a secure account for you. Meanwhile, they will be negotiating with your creditors on your behalf for a lump sum payoff. When the amount of money in the secure account reaches the amount a creditor has agreed to accept for payoff, the debt settlement company will use your money to settle that debt.

Debt Settlement: What You Don't Know CAN Hurt You!

Unfortunately, what may be less obvious to most people who are struggling to end the collection calls and legal threats, is that many debt settlement companies will do nothing to help in this area. The whole time you are making payments to the debt settlement company and not to your creditors, your creditors may continue to pursue collection or legal action against you. Depending on the amount of debt you have and the amount you are able to pay in to your secure account each month, getting together enough money to make the lump sum payment to your creditors could take as long as a few years. This can make an already poor credit profile go from bad to worse!

In addition, some debt settlement companies charge an account administration fee. This fee is not applied toward your debt, but goes straight to the settlement company to cover some of their costs. In some cases, your first payment or first several payments to the debt settlement company will go toward your account administration fee versus into your secure account. Then, they may apply a monthly service fee to maintain your account which will be taken out of your monthly payment and will not go into your secure account. It's quite possible that your administration fee and monthly service fees could add up to more than the interest you'd pay if you were to continue making regular payments to your creditors.

Non-Profit Debt Settlement: Is It the Answer?

A lot of debt settlement companies present themselves as non-profit organizations. A non-profit designation allows them to apply for government grants, collect donations and entitles them to certain tax advantages. It does not necessarily mean that they are do-gooders who just want to help you out. "Non-profit" or not, they may still be trying to take you for a ride.

Research Non-Profit Debt Settlement Companies and Options Thoroughly

If you'd rather not attempt to negotiate with your creditors on your own behalf, it's important to research any debt settlement company thoroughly before signing up for their program: there are good companies out there! Ask a lot of questions—including questions about fees and whether or not they can lower your interest rates and payments with your creditors while they negotiate. Be sure to ask if they are able to get debts removed from your credit report once settled. Check the better business bureau reports for any complaints against the company, and look for online non-profit debt settlement company reviews to get a sense of how their customers feel about them.

Don't Confuse Debt Settlement with Debt Consolidation or Credit Counseling

Debt consolidation is an option which is not a loan or a savings plan. All debt payments are consolidated and you make one monthly payment to the debt consolidation service agency which then pays all creditors. Consumer credit counseling service is guaranteed to individuals who meet hardship requirements. To qualify, you must have unsecured debt of $2,500 or more, at least two unsecured accounts, and a source of income. The counselor will work with creditors to reduce or eliminate interest charges. The next step is to negotiate a monthly payment that you can handle and that satisfies each creditor.

Non profit counseling is a smart choice for debt matters. Counselors will analyze your debt, establish a budget that fits your salary, and offer choices of strategies to achieve freedom from debt. Valuable tips and techniques will be shared to help produce better management of your finances. You should always be treated with respect and compassion in this process. Education is the most important factor in achieving and maintaining a debt-free lifestyle. Consultations are available without obligation through online sources.