Debt Negotiation

Debt negotiation happens when you try to talk your way out of that deep nasty debt you got yourself into.

You can negotiate on your own or you can try to get help. Often a person who would be helping you is lawyer or debt consolidator just pretending to be a negotiator. Just someone looking to rip you off, take you for a ride, get you in much deeper pit than the one you are already in. Sounds comforting, eh?

Ever heard those ads on the radio: “ … pay just few cents on a dollar ... ”, “ … never settle yourself, have professional do it for you … ”, “ … this is debt negotiation not consolidation … ” and bla-bla-bla, I can go on and on and on. To make it more believable they put some older, grumpier voice instead of younger, sleeker one that sounds like Ya, go ahead, trust me - I ain’t some Harvard degreed rich SOB, I‘s one of you, used to live in a mobile home with nothing but debt, but now I's debt free and soo haappy, can help ya, poor fella too type of stuff.

Well watch out for these debt negotiation schemes. Debt negotiation like this can finish you off in a hurry.

Debt negotiation – the hot promises

Debt negotiation outfits like to say that they are not-for-profit organizations. Their favorite sale pitch is that they will renegotiate your credit card or other unsecured debt to be paid off for something like 20 to 60 percent of the balance you owe. Nice, isn't it? Here you are, in debt up to your ears, owing $20,000 in credit cards, and, just like that, someone offers you a favor - I'll take care of you, you'll pay $4,000, may be $12,000 and the debt is gone.

The other story these firms are likely to tell is that their services are the last and only alternative to bankruptcy. They will assure you that if you use their services, your credit rating and score won't be affected, and if you do get some minimal negative information on your credit report, it can be easily removed once you complete their debt negotiation program. You also must stop sending monies to the creditors, and send one payment to the debt negotiation firm, where else. The firm will set up an account and distribute your money to your creditors. And no, they won't take a cent.

Debt negotiation – the cold facts

First, the nonprofit thing. Unless the debt negotiation plan or service is offered thru church, synagogue, community college, public library, military base, credit union or something of that type, chances are it is for profit, and a tidy one. They want to make money and you will be the one, footing their Caribbean cruises they like to take at least twice a year. They set your account up or rather yourself, and there is charge for it, then there is monthly fee for their nonprofit services. Remember, you pay to them monthly, they pay to creditors. You won't even know how much they keep for themselves each and every month. Finally, you will pay a nice chunk of money that a debt negotiation company supposedly has saved you.

Second, no one can guarantee that a given creditor will accept meager amount of money and write off the rest of your debt. Once you stop making payments on a credit card, or department store card, or any other unsecured loan, late fees and higher interest will be added each month. If you exceed your credit limit, more fees and charges are to follow. Your original debt will skyrocket. Then you are really looking into bankruptcy. How's that for the alternative?

Third, creditors must report up to date information to the credit reporting bureaus. Once you stop making obligatory monthly payments to those creditors, it will be reported and you will have a very negative entry, or few, depending on how many creditors you stop paying to, on your credit report. Your credit is ruined. And negative information will stay long years on your credit report. And no, it can't be legally removed. But that is not the end of it, creditors have rights, you know. They can sue you and try to recover the money that are rightfully theirs. If they win, they may garnish you wages and put a lien on your house provided you have one. And IRS, the Internal Revenue Service will treat as taxable income any savings that exceed $600 or so.

Fourth, the funniest thing, you won't save anything. You will overpay, ruin you credit and piss mighty IRS off. That would be funny if only it wouldn't be that sad.

Debt negotiation - what firms to stay away from

If you do decide to work with a debt negotiation company, check with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if there have been consumer complaints about the firm you're looking at. Also, verify if the company must be licensed to work in your state. Never deal with the companies, licensed or not which do the following:

• tell you that unsecured debt can be paid off with pennies on the dollar
• allege that their system is the alternative to bankruptcy
• ask for substantial monthly service fee
• ask for payment of a percentage of hypothetical savings
• tell you to stop making payments to and contacting your creditors
• tell you that creditors can't sue consumers for a non-payment
• tell you that their system will have no negative impact on your credit
• promise they can remove correct negative information from your credit report
• will not disclose exact monthly payment they will send to each creditor
• will not provide exact time frame to conclude their services

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