Debt Negotiation Programs
Debt negotiation programs offer to do many things when it comes to helping you get rid of your excess debt. Just what can they actually do for you during this difficult time in your life? The following information below obtained from the Federal trade Commission's website explains what debt negotiation programs are all about.Debt Negotiation Programs Debt negotiation is not the same thing as credit counseling or a DMP. It can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit. That's why many states have laws regulating debt negotiation companies and the services they offer. The 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. The 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. The 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. The Truth 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. And 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 Rip-offs Steer clear of companies that:
