A debt negotiation company contacts your creditors on your behalf, and then negotiates a payoff amount for your credit accounts, according to the business experts at the Better Business Bureau website. While the debt settlement companies try to make the process sound simple, there are facts that every consumer should know. Understand the truth about debt negotiation before you contact a financial expert.
Credit Problems
Debt negotiation companies tell consumers to make payments directly to the settlement organization, and then the financial professionals will make the payments on behalf of the client. In some cases, consumers find out months later that the company never made the payments and the debt settlement company kept the money and disappeared, according to the Better Business Bureau website. To add insult to injury, because there were no payments made for months on their accounts, consumers found their credit scores ruined and their accounts deep in the collections process. Your accounts will also accrue late charges for payments missed. Before you use a debt negotiation company, check the company out with the Better Business Bureau's website to see if there are any complaints against the company. Stay in touch with your creditors and make sure they are receiving payments. Pay the debt negotiation company by check, and keep a record of every payment you make. If your creditors are not getting your payments, then talk to the debt settlement company immediately. If the situation persists, seek legal counsel.
Fees
Prior to signing a debt negotiation agreement, ask to see a schedule of fees. The fees for debt negotiation can be significant, according to the Federal Trade Commission website. Debt settlement professional fees commonly include a setup fee for your account, a fee to negotiate with creditors, a fee based on a percentage of how much money the negotiator saved you and a monthly administration fee. The percentage for the money saved fee can vary depending on the debt negotiation service.
Taxes
When your credit accounts are negotiated to a lower pay-off amount, the money that you save can be considered income by the IRS, according to credit expert Leslie McFadden writing on the Bankrate website. To determine if you owe income tax on the portion of the forgiven debt, you need to speak to a tax attorney. The tax burden will vary depending on the amount you save and the state you are in. Only a qualified tax expert can give you the correct answer to that question.
Creditors
Credit card companies are not required to negotiate debt with a debt settlement professional, according to the Federal Trade Commission website. A credit card company is also not required to accept partial payment from either a consumer or a debt negotiation professional for a debt either. If you plan to use a debt settlement company, you will want to contact your creditors to see if they will allow you to do so. You are able to negotiate your own debt and create your own payment arrangements with your creditors as well. That will save you money on debt settlement fees, and you will know right away if your creditors will accept a settlement or not.
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