Debt Negotiation
What is Debt Negotiation - Otherwise known as Debt Settlement or Debt Elimination, debt negotiation is a service that people turn to as they fall deeper and deeper into debt.
Debt negotiation is a specialty service offered to those who can't make the minimum payment of a debt consolidation program, or have large outstanding debts on which they haven't paid in 3 months or more. The main benefit of a debt negotation service is that clients can end up paying as littel as 50% of the original amount owed to their creditors.
Unfortunately for the unsuspecting debtor, there can be risks involved with Debt Negotiation Programs, which are not always spelled out by the debt negotiation firm involved.
Debt Negotiation Programs
Much of the following Debt Negotiation Information was originally published under the title "Choosing a Credit Counselor", and is courtesy of the Federal Trade Commission.
Debt negotiation is not the same thing as credit counseling or a DMP, and Debt Negotiation Companies do not provide Credit Counceling. Debt negotiation can be very risky and have a long term negative impact on your credit report. It can even interfere with your ability to get credit in the future.
Debt Negotiation Company Claims
Debt negotiation firms may claim they're nonprofit. They also may claim that they can arrange for your unsecured debt - typically, credit card debt - to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay off the debt with a lesser amount, say $4,000.
Debt Negotiation Firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program. Debt negotiation firms usually tell you to stop making payments to your creditors, and instead, send your payments to the debt negotiation company. The firms may promise to hold your funds in a special account and pay the creditors on your behalf.
Truth about Debt Negotiation Programs
Just because a debt negotiation company describes itself as a "nonprofit" organization, there's no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. All this can quickly cause a consumer's original debt to double or triple. What's more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you've supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. In certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Tip-offs to Debt Negotiation Rip-offs...
Stay away from Debt Negotiation Companies that:
- Guarantee they can remove your unsecured debt
- Promise that unsecured debts can be paid off with pennies on the dollar
- Claim that using their system will let you avoid bankruptcy
- Require substantial monthly service fees
- Demand payment of a percentage of savings
- Tell you to stop making payments to or communicating with your creditors
- Require you to make monthly payments to them, rather than with your creditor
- Claim that creditors never sue consumers for non-payment of unsecured debt
- Promise that using their system will have no negative impact on your credit report
- Claim that they can remove accurate negative information from your credit report
If you decide to work with a Debt Negotiation Company instead of seeking out a legitimate Credit Counselor or Credit Counceling Organization, be sure to check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with.
Also, ask your state Attorney General if the Debt Negotiation Company is required to be licensed to work in your state and if in fact they are. Generally it is a safer bet to find a credit councelor you feel comfortable with and trust.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Last Word on Debt Negotiation as an Alternative to Professional Credit Counselor to Help Solve Your Financial Problems...
There you have it, good advice and common sense guidelines for anyone living paycheck to paycheck, worried about debt collectors and unable to develop a workable budget on their own, let alone save anything for a future emergency or retirement fund.
Help is available, but remember, Debt Negotiation is not Credit Counceling or a Debt Management Plan. If it sounds too good to be true, it probably is. Debt Negotiation Programs can be very risky and have a long term negative impact on your ability to get credit in the future.
That's why many states have laws regulating Debt Negotiation Companies and the services they offer...
If you find yourself in this or similar situation, you truly may want to consider the services of a Credit Counselor or Credit Counceling Organization near you!
Review the newest changes to United States Bankruptcy Law, and how they effect the need for Certified Credit Counselors.
