The "Non-Profit" Debt Consolidation Business Model Truth
Today I want to talk about and explore the business model that is incorporated consistently by the overwhelming majority of the non-profit debt consolidation companies you see advertised relentlessly.
Aside of pharmaceutical companies and law firms you are hard pressed to find an industry that is spending more advertising dollars than the debt consolidation industry.
This is a billion dollar industry that is spending millions of dollars to advertise their services.
As you hear on the radio and see on TV countless times each day, all it takes is a quick phone call to a one-eight hundred number and all of your financial headaches will vanish.
A credit counselor will call all of your creditors, negotiate your balances and interest rates down as well as pay all of your bills for you.
Your phone will stop ringing and life will soon be great again.
The first thing in this process to understand is that a non-profit company is just a business filing classification, not an organization that operates for free.
These companies employ people they have to pay to market and sell their product, man the phone lines, process files, negotiate on their client's behalf and manage their client's bills each month.
Not to mention, have you priced what a 30 second TV commercial during prime time on a national network costs? Consider the marketing, manpower and facilities to house these employees and you see that there is a huge amount of overhead costs associated with this business structure.
Guess who these costs are being passed down to? When you sign up with a debt consolidation company what are you actually buying? Once you send them all of your monthly income and billing information you are then paying them to prioritize and organize all of your monthly bills.
Typically you are then required to turn over your paychecks to them, less the stipend they will allow you to keep if you have an emergency or need milk in the middle of the week.
They will then contact your credit card companies and negotiate ways to employ credit debt management and pay all of your bills for you.
You are paying someone to solve all of your financial worries.
As all of you that have been to the Budget4Life website already know, I am not preaching to anyone about anything I haven't researched and learned first hand.
Initially as I was trying to deal with my own debt problems I did look at debt consolidation companies as a viable option.
As I considered this option there were 3 questions I asked myself.
1.
What is my end goal and what do I really need help with to achieve it? 2.
How much money is this going to cost me in the long run to pay someone to fix and manage this for me? 3.
And finally, what is buying this process going to be saying about me as a person and a businessman? What is my end goal and what do I need help with? The answer to the first part of this question I knew immediately and didn't figure I needed to pay a stranger to help me with.
I wanted to be debt free! To answer the second part of this question however, I had to research and consider two things.
What services do these companies actually provide and of what they do provide, what is there that I couldn't do myself? Once I boiled their process down, it turned out that they would be selling me three things.
The first thing they were selling was a process.
This process had to be complex as it appeared to be a secret that was also common knowledge.
It was a secret in the sense that scouring the entire internet I couldn't find a single resource that would volunteer information on how to do this.
It seemed at the same time to be common knowledge in that there were hundreds of companies that had mastered the process and would tell me how for a price.
It soon became obvious that I would either have to pay someone to do this for me or figure it out myself.
The second thing they were selling was time and convenience.
I couldn't afford cable TV, how was I going to justify paying for a luxury like saving time or any convenience for that matter.
After all, once I got everything organized, what kind of time savings would I be talking about? How long does it take to write 18 checks, stuff them in envelopes and run them out to the mailbox? In addition they were selling me peace of mind.
This sounded great and believe it or not I didn't then nor do I now question if whether what they do really works.
Considering the amount they are charging, I am sure their processes work great and that most provide a great service.
The question was, could I afford it and would the results be worth what I would have to pay out in the long run? How much is using a debt consolidation company going to cost in the long run and how do they get paid? Many debt consolidation companies have a few price based options to choose from but all of your options will fit into this basic product mold: o There will be a monthly fee associated with their service.
Depending on the degree of debt and the package chosen, this fee will typically range anywhere from $100 to $500 per month.
Truly, how could they charge less and cover all of their overhead costs? o There will be a contract to sign and a commitment to use their services for an extended period of time.
In most cases it doesn't take a person with a Master's degree from Princeton to glance at the balances you owe and the interest being charged to figure out that this isn't going to be fixed in a few weeks.
This kind of debt typically doesn't happen overnight and it will not disappear that quickly either.
In most cases this will take months and even years to overcome.
At just $100 per month over 3 years this would cost me $3,600.
Now I see how they pay for all that commercial air time.
And finally, what would choosing this process say about me both as a person and as a professional? Am I really too busy to fuss with this financial mess I have created for myself? Is it really too complicated for me to understand or just easier to dump this responsibility on a stranger and not have to deal with it? From a personal standpoint, what are future creditors going to think about extending me credit if I need help just to manage paying my current bills? I know what I would think if I was the one doing the lending.
Most importantly to me professionally is what employer would trust me to be in a position to manage their business if I can't manage my own personal business? Regardless of how you choose to manage your debt situation it is imperative to incorporate a system that fixes the problem for the long-term.
With the exception of those that have fallen behind because of large medical bills or a catastrophic emergency, there is reason you are in the mess you find yourself in.
The system you choose to use should incorporate an understanding that what got you to this point is a mind-set and the approach taken to budget your money, not bad breaks, bad luck or a bad economy.
As with any diagnosis you must first establish the cause of the problem before you can prescribe a permanent cure.
Trying to pass off this responsibility to someone else and not changing your mindset and approach is an awful lot like thinking a diet pill will solve a weight problem.
Most diet pills will suppress your appetite by making you nauseous and will deliver some short term results, but at some point in time you have to stop taking the pills and you will end up gaining all of the weight back.
Again this boils down to a simple math equation.
Calories in during the course of the day minus calories burned through activity equals the size of the love handles.
The only long-term solution is to change your outlook, mindset and approach to how much you eat, what you eat and how much you exercise.
How you manage your income versus expenses in no different.
Give a man a fish and you feed him for a day.
Teach a man to fish and you will feed him for life.
Aside of pharmaceutical companies and law firms you are hard pressed to find an industry that is spending more advertising dollars than the debt consolidation industry.
This is a billion dollar industry that is spending millions of dollars to advertise their services.
As you hear on the radio and see on TV countless times each day, all it takes is a quick phone call to a one-eight hundred number and all of your financial headaches will vanish.
A credit counselor will call all of your creditors, negotiate your balances and interest rates down as well as pay all of your bills for you.
Your phone will stop ringing and life will soon be great again.
The first thing in this process to understand is that a non-profit company is just a business filing classification, not an organization that operates for free.
These companies employ people they have to pay to market and sell their product, man the phone lines, process files, negotiate on their client's behalf and manage their client's bills each month.
Not to mention, have you priced what a 30 second TV commercial during prime time on a national network costs? Consider the marketing, manpower and facilities to house these employees and you see that there is a huge amount of overhead costs associated with this business structure.
Guess who these costs are being passed down to? When you sign up with a debt consolidation company what are you actually buying? Once you send them all of your monthly income and billing information you are then paying them to prioritize and organize all of your monthly bills.
Typically you are then required to turn over your paychecks to them, less the stipend they will allow you to keep if you have an emergency or need milk in the middle of the week.
They will then contact your credit card companies and negotiate ways to employ credit debt management and pay all of your bills for you.
You are paying someone to solve all of your financial worries.
As all of you that have been to the Budget4Life website already know, I am not preaching to anyone about anything I haven't researched and learned first hand.
Initially as I was trying to deal with my own debt problems I did look at debt consolidation companies as a viable option.
As I considered this option there were 3 questions I asked myself.
1.
What is my end goal and what do I really need help with to achieve it? 2.
How much money is this going to cost me in the long run to pay someone to fix and manage this for me? 3.
And finally, what is buying this process going to be saying about me as a person and a businessman? What is my end goal and what do I need help with? The answer to the first part of this question I knew immediately and didn't figure I needed to pay a stranger to help me with.
I wanted to be debt free! To answer the second part of this question however, I had to research and consider two things.
What services do these companies actually provide and of what they do provide, what is there that I couldn't do myself? Once I boiled their process down, it turned out that they would be selling me three things.
The first thing they were selling was a process.
This process had to be complex as it appeared to be a secret that was also common knowledge.
It was a secret in the sense that scouring the entire internet I couldn't find a single resource that would volunteer information on how to do this.
It seemed at the same time to be common knowledge in that there were hundreds of companies that had mastered the process and would tell me how for a price.
It soon became obvious that I would either have to pay someone to do this for me or figure it out myself.
The second thing they were selling was time and convenience.
I couldn't afford cable TV, how was I going to justify paying for a luxury like saving time or any convenience for that matter.
After all, once I got everything organized, what kind of time savings would I be talking about? How long does it take to write 18 checks, stuff them in envelopes and run them out to the mailbox? In addition they were selling me peace of mind.
This sounded great and believe it or not I didn't then nor do I now question if whether what they do really works.
Considering the amount they are charging, I am sure their processes work great and that most provide a great service.
The question was, could I afford it and would the results be worth what I would have to pay out in the long run? How much is using a debt consolidation company going to cost in the long run and how do they get paid? Many debt consolidation companies have a few price based options to choose from but all of your options will fit into this basic product mold: o There will be a monthly fee associated with their service.
Depending on the degree of debt and the package chosen, this fee will typically range anywhere from $100 to $500 per month.
Truly, how could they charge less and cover all of their overhead costs? o There will be a contract to sign and a commitment to use their services for an extended period of time.
In most cases it doesn't take a person with a Master's degree from Princeton to glance at the balances you owe and the interest being charged to figure out that this isn't going to be fixed in a few weeks.
This kind of debt typically doesn't happen overnight and it will not disappear that quickly either.
In most cases this will take months and even years to overcome.
At just $100 per month over 3 years this would cost me $3,600.
Now I see how they pay for all that commercial air time.
And finally, what would choosing this process say about me both as a person and as a professional? Am I really too busy to fuss with this financial mess I have created for myself? Is it really too complicated for me to understand or just easier to dump this responsibility on a stranger and not have to deal with it? From a personal standpoint, what are future creditors going to think about extending me credit if I need help just to manage paying my current bills? I know what I would think if I was the one doing the lending.
Most importantly to me professionally is what employer would trust me to be in a position to manage their business if I can't manage my own personal business? Regardless of how you choose to manage your debt situation it is imperative to incorporate a system that fixes the problem for the long-term.
With the exception of those that have fallen behind because of large medical bills or a catastrophic emergency, there is reason you are in the mess you find yourself in.
The system you choose to use should incorporate an understanding that what got you to this point is a mind-set and the approach taken to budget your money, not bad breaks, bad luck or a bad economy.
As with any diagnosis you must first establish the cause of the problem before you can prescribe a permanent cure.
Trying to pass off this responsibility to someone else and not changing your mindset and approach is an awful lot like thinking a diet pill will solve a weight problem.
Most diet pills will suppress your appetite by making you nauseous and will deliver some short term results, but at some point in time you have to stop taking the pills and you will end up gaining all of the weight back.
Again this boils down to a simple math equation.
Calories in during the course of the day minus calories burned through activity equals the size of the love handles.
The only long-term solution is to change your outlook, mindset and approach to how much you eat, what you eat and how much you exercise.
How you manage your income versus expenses in no different.
Give a man a fish and you feed him for a day.
Teach a man to fish and you will feed him for life.
