Many debt consolidation outfits will masquerade as non-profit organizations. They may do this in order to appear more legitimate than “for profit” debt management companies. They may call themselves non-profit to appeal to philosophical consumers who want to repay their debts as a matter of their convictions; these consumers would avoid for profit organizations while preferring a debt consolidation group that brands itself as a counseling service instead of a business. There are shady groups that will use the non-profit status to justify inflated overhead expenses or avoid paying income taxes. There are legitimate non-profit debt consolidation organizations, however, there are several traits to look for in order to distinguish the real non-profit debt consolidation organization from a pretender.
Traits of the Legitimate Debt Consolidation Non-Profit
You will be given an easy-to-read contract listing all fees and charges up front. There is no pressure to sign the agreement. Legitimate organizations will charge a fee for their services, waive the fee from their charitable case budget or request donations after you’ve paid off your debt. Legitimate non-profit debt consolidation firms may offer a sliding scale fee based upon your income or circumstances.
A debt consolidation non-profit typically charges less than the for profit organizations. Their funds may come from donations given by prior clients, donations from the local community, support from local religious groups and corporate donations. Legitimate non-profit debt consolidation organizations have a 501(c)(3) status with the Internal Revenue Service. You may be charged a flat fee or a monthly fee. A flat fee can be divided among your monthly payments to lessen the burden of paying it.
Legitimate non-profit organizations will not request your Social Security Number up front or over the phone. Legitimate non-profits may need the Social Security Number eventually in order to run a credit report, but this will only happen after you have signed the forms agreeing to become their client.
Traits of a Scam Posing as a Non-Profit
Illegitimate non-profit organizations will take an upfront fee while calling it a “donation” to the organization. It is very rare for a real religious figure to act as a financial advisor, legal counsel or tax professional. Never give a non-profit representative or counselor a general power of attorney; they do not need this authority to aid you, but they can use it to steal what little you have left. Debt consolidation scams will promise to eliminate all of your debt in a few months, regardless of the amount.
Signs of a Scam
Do not give your personal information to any group that cannot offer proof of a 501(c)(3) status if you want to work with a non-profit organization. It is not unreasonable for a debt consolidation non-profit to have religious affiliations. However, if the person offering you financial advice answers to a religious title, red flags should go up. If this same person also seeks to be named as your financial power of attorney, run. Do not work with anyone who pressures you to sign a contract. Never sign an agreement that gives the non-profit a set percentage with an additional amount going to an associated place of worship. Real non-profit debt consolidation firms will not require tithing above and beyond their monthly service fee. Do not give the debt consolidation firm access to your checking account, nor should you work with any group that demands volunteer work such as helping clean the office or answer the phones.
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Formerly deep in debt, John writes about his experiences for personal finance blogs. He also writes for CreditGUARD, a non-profit debt consolidation agency with an A+ rating with the Better Business Bureau.