Debt negotiation is one of the many options that consumers explore when they are trying to get their debt under control. Other options include debt consolidation, credit counseling and, in extreme cases, bankruptcy. Debt negotiation companies can charge high fees for their services, according to the Federal Trade Commission website. The problem for consumers is making sure they are getting value for the money they pay debt negotiation firms.
Definition
A debt negotiation company offers to talk to your creditors on your behalf to lower the pay-off amounts on your credit accounts. In many instances, a debt settlement company will promise to lower your existing balance by as much as 70 percent, according to the Federal Trade Commission website. The Federal Trade Commission warns against believing such promises and suggests getting everything in writing from a debt settlement company before signing any agreements.
Considerations
A credit card company is not bound by any law to talk to a debt settlement company, or to accept and offers created by a debt negotiation firm, according to the MSN Money website. In most cases, credit card companies will not consider a negotiated balance for customers that are current on their payments or are three months or less behind. It commonly requires a delinquency of at least six months before a credit card company would consider accepting a negotiated pay-off amount.
Fees
Always insist on seeing a schedule of fees from a debt negotiation company prior to doing business with them, suggests the Federal Trade Commission. Common fees for a debt settlement account include a set-up fee for your account, a percentage commission on the amount that the firm saved you in negotiations and a monthly administrative fee added into your monthly payments to creditors through the debt settlement firm. The Federal Trade Commission points out that a debt settlement company must explain all fees to you, cannot charge you fees until a settlement is negotiated and can only charge you partial fees if the firm on gets partial results. For example, if the firm negotiates with three of your creditors but only gets a settlement from one, then you can only be charged for the one account that was settled.
Warning
Debt negotiation companies often ask clients to stop talking to their creditors and stop trying to make payments while negotiations are going on, according to the MSN Money website. When this happens, the debt settlement company must explain all of the consequences of this action to you if they recommend it, according to the Federal Trade Commission. Some of the consequences include an increase in penalties and charges added to your account, damage to your credit score due to lack of payment and possible legal action by your creditor to try and recover the amount due.
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