Debt Negotiation Can Get Rid of Your Credit Card Debt, But You Should Know the Risks First
Debt negotiation, if used in the right situation can significantly reduce your credit card debt. Some people have successfully had the total amount owed to their creditor reduced by between thirty to fifty percent. On the other hand, many people have paid the fees only to see no reductions in their bills, which is why debt negotiators get a bad rap.
If you use the debt settlement process in the right circumstances and work with a reputable firm, you may be able to achieve significant reductions in your bill. However, before pursuing this path, it's important that you first learn the risks involved.
1. If you're current on your payments, debt negotiation can hurt your credit rating.
In order to negotiate with a creditor, your account must be charged-off. This occurs only after 6 months of unpaid payments. Thus, debt negotiators will advise you to stop making payments. The lack of payments and the charge-off will negatively affect your credit score. On top of that, the lack of payments may inspire a creditor to pursue legal action.
However, if you're already behind on payments and your account has been written off by the credit card company, then your credit rating has already taken the hit and it may be worthwhile to look into debt settlement in more detail.
2. You might not get any reduction in what you owe.
A reduction depends on what each of your creditors is willing to accept during the debt negotiation process. Thus, the debt negotiator needs to speak with all of your creditors to work with them to reduce the amount you owe. Each creditor is different, so you won't know if they are willing to make a deal until after the debt settlement company has started working on your behalf and begun billing you for their services.
On the other hand, reputable firms with a good track record will charge fees based on a percentage of how much they save you (i.e., the total reduction of the amount you owe). You'll also need to factor into the savings that you may owe taxes on the forgiven debt.
3. The debt settlement industry has a bad reputation.
Many firms opened to take advantage of the economic recession as opposed to truly help people. As well, there have been high profile cases of companies taking advantage of their clients by charging high fees, promising huge savings and failing to give people all the relevant information upfront.
Fortunately, new rules by the Federal Trade Commission are putting an end to questionable practices by debt negotiation companies. Companies must clearly disclose their fees, how long the settlement process will take, and the impact on your credit score. They can't charge fees upfront and are not allowed to promise huge savings just to get you to sign on. As a consumer, one of the best ways to check if a debt settlement company is reputable is to look them up on the Better Business Bureau's website.
If you use the debt settlement process in the right circumstances and work with a reputable firm, you may be able to achieve significant reductions in your bill. However, before pursuing this path, it's important that you first learn the risks involved.
1. If you're current on your payments, debt negotiation can hurt your credit rating.
In order to negotiate with a creditor, your account must be charged-off. This occurs only after 6 months of unpaid payments. Thus, debt negotiators will advise you to stop making payments. The lack of payments and the charge-off will negatively affect your credit score. On top of that, the lack of payments may inspire a creditor to pursue legal action.
However, if you're already behind on payments and your account has been written off by the credit card company, then your credit rating has already taken the hit and it may be worthwhile to look into debt settlement in more detail.
2. You might not get any reduction in what you owe.
A reduction depends on what each of your creditors is willing to accept during the debt negotiation process. Thus, the debt negotiator needs to speak with all of your creditors to work with them to reduce the amount you owe. Each creditor is different, so you won't know if they are willing to make a deal until after the debt settlement company has started working on your behalf and begun billing you for their services.
On the other hand, reputable firms with a good track record will charge fees based on a percentage of how much they save you (i.e., the total reduction of the amount you owe). You'll also need to factor into the savings that you may owe taxes on the forgiven debt.
3. The debt settlement industry has a bad reputation.
Many firms opened to take advantage of the economic recession as opposed to truly help people. As well, there have been high profile cases of companies taking advantage of their clients by charging high fees, promising huge savings and failing to give people all the relevant information upfront.
Fortunately, new rules by the Federal Trade Commission are putting an end to questionable practices by debt negotiation companies. Companies must clearly disclose their fees, how long the settlement process will take, and the impact on your credit score. They can't charge fees upfront and are not allowed to promise huge savings just to get you to sign on. As a consumer, one of the best ways to check if a debt settlement company is reputable is to look them up on the Better Business Bureau's website.
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