Debt Negotiators, Credit Destroyers
By John Campbell
Stay away from debt negotiators if you need
to repair your credit. They will do more harm
than good to your valuable credit rating.
In many cases, debt negotiators could be
more accurately dubbed as credit destroyers.
If you don’t know what to watch out for when
dealing with debt negotiation companies, that’s
exactly what they’ll do.
Debt negotiators often make a very
bold claim; that they can get your creditors
to agree to accept only a percentage of
the amount you owe them. While this may
in fact be true, your credit may be destroyed
in the process. In a worst case scenario
you could also end up owing even more
money than the debt negotiator promised
you would save.
Avoid debt negotiators who make claims
that seem too good to be true. Any debt
negotiator who guarantees that your unsecured
debt can be removed should be regarded
with healthy skepticism. The only thing
that’s likely to end up being removed
is your good credit rating.
You may also have to pay several expensive
fees upfront in order to gain some very
questionable advice. Unscrupulous debt
negotiators may try to convince you to
stop paying your credit card bills altogether.
If you follow this advice you will regret
it.
For each missed credit card payment,
you will be charged late fees and your
credit score will plummet. In the meantime
you may be charged hefty monthly fees
by your debt negotiator who is claiming
to be working to reduce your debt.
In actuality, the negotiator waits for
several months and then contacts each
of your creditors to tell them that you
no longer have the means to pay off your
debt. The negotiator will try to convince
the creditors that they should forgive
some of your debt. If successful, the
negotiator may reach a settlement with
your creditors to close out your account
and require you to pay back somewhere
between 10 - 50 percent of the original
balance owed. If a creditor is convinced
that you will default on your debt, they
may be willing to forgive some of your
debt in as effort to at recoup at least
some of their losses.
It might seem like a great idea to enlist
the services of a debt negotiator if you
owe $9,000 and can get your debt reduced
to $5,000, for example. The $4,000 you
save will be considered taxable income
by the IRS, however. Come tax time you
could end up losing your yearly refund
and even owe money. The IRS is not as
forgiving of debts as some creditors may
be.
Although a debt negotiator may convince
many creditors to forgive some of your
debt, there is no guarantee your creditors
will agree to any settlement. In the meantime
you could be sued for nonpayment, have
your wages garnished and put your assets
at risk. Your credit rating will also
end up in much worse shape than before
you consulted with a debt negotiator.
No "quick fix" solutions offered by debt
negotiators will improve your credit score.
Only time and a commitment to pay off
your debts will truly help you in the
long run. Remember, the choices you make
today will have a profound influence on
all of your possible financial futures.
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John Campbell is the writer and editor
of CashBuzz,
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