Debt Negotiation Programs

Debt negotiation is not the same thing as credit counseling or a debt management. It can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit. That's why many states have laws regulating debt negotiation companies and the services they offer.

Debt negotiation firms may claim they're nonprofit. They also may claim that they can arrange for your unsecured debt  typically, credit card debt  to be paid off for anywhere from 8 to 40 percent of the balance owed. For example, if you owe $20,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay off the debt with a lesser amount, say $6,000.

The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send your payments to the debt negotiation company. The firms may promise to hold your funds in a special account and pay the creditors on your behalf.

Ask your credit counselor if debt negotiation is something you should consider.