Debt Settlement/Debt Negotiation
Many consumers are experiencing the stress that comes with mounting credit card debt. The BBB warns over-burdened consumers to beware of companies that promise to cut their bills in half by negotiating low payoff amounts from creditors.
Debt settlement companies or debt negotiators promote their services to reduce a consumer's debts and pay them off. Some debt negotiators are known to charge hefty upfront fees. Others charge fees based on the amount of debt you owe or the number of credit accounts you have, or they may charge fees based on the amount of debt a creditor agrees to wipe out. NOTE: Effective October 27, 2010 the Federal Trade Commission has ruled that for-profit companies that sell debt relief services over the telephone may no longer charge a fee before they settle or reduce a customer's credit card or other unsecured debt. This rule covers calls consumers make to these firms in response to debt relief advertising.
While avoiding bankruptcy, debt negotiation will leave many charge-offs on your credit file, which to other creditors, and future potential lenders, can look just as bad as bankruptcy. Often, a debt-negotiating company will tell you to stop making payments to creditors and to send money to them instead. The money gets placed in an account until the debt negotiator decides to make an offer to a creditor. If you are paying monthly paymentsto the negotiator, it can take months before enough money is collected from you to make a settlement offer to a creditor. And, after several months of not paying your creditors, your credit can be ruined. Write-offs or charge-offs can stay on your credit report for seven years.
Also, debt amounts written off may cause problems for consumers with the Internal Revenue Service, because the amount of debt that is forgiven may be viewed as income to the borrower.
If you feel you need help with your finances, you may want to visit with a certified credit counselor with a reputable, accredited, consumer credit counseling service. Consumer credit counselors encourage consumers to make every effort to pay their debts. With the help of a certified credit counselor, who seeks reductions in interest charges and payments as part of an overall plan to pay off the debt, consumers can avoid bankruptcy andruining their credit standing.