The Pros and Cons of a Credit Card Debt Settlement or Negotiation

Debt settlement or negotiation is the process of requesting a lower pay-off balance from your credit card company. If you find that your debt is getting out of control, it would be easier to pay your debt if you could get the credit companies to agree to a lower balance. There are pros and cons to debt settlement that you should understand before you get started.

Lower Debt

The point of debt settlement is to lower your debt and reduce your financial obligation. You want to discuss the elimination of late fees and penalties, the lowering of your interest debt and the reduction of your principle. The credit card company is under no obligation to settle your debt with you, but if the company feels that getting something is better than nothing, they will work with you.

Representation

When choosing a debt settlement firm, you should look for a reputable law firm or financial organization to assist you, according to financial expert Leslie McFadden on Bankrate.com. When you use professional representation, you have an experienced organization looking out for your interests that will work to get you the best deal possible. It removes the feeling that you are alone in your credit issues.

Fees

Debt negotiation can be expensive if you hire a professional firm to do it for you. Some of the fees you can expect include a fee to set up your payment account, a monthly service fee to make your payments to the creditors for you, and an initial service fee for negotiating your settlement that could run into the thousands of dollars, according to MSN Money. Discuss fees with the debt settlement firm before signing an agreement.

Compounding Debt

A debt settlement organization will tell you that you should stop corresponding with your credit card company and only deal with the settlement associates, says McFadden. The settlement company will take their fees from your payments before they send anything to the credit card company. It could be months before your credit card company sees a payment and that can result in compounded penalties and late fees. Then there is interest added to your late fees and penalties, and suddenly your debt is much more than it was.