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Saturday, February 21, 2009

What are Debt Negotiation Programs?

By Paul J. Easton

A debt negotiation is different from the credit counseling or the debt management plan. It can be a very risky decision and if not handled well can create a long term negative impact on your credit report. As an end result, it can hamper your ability to get credit in the future.

Debt negotiation agencies claim that they are actually nonprofit. And that they can arrange for your credit card debt. With such an ambitious claim, it even further assures you to pay off for anywhere from 10 to 50 percent of the balance owed.

To exemplify, a credit card debt amounting to $10,000 can be handled by a debt negotiation firm. By claiming it can arrange for you to pay off the debt with a much lesser amount like $4,000, you will likely think that this is too good to be true.

The debt negotiation firms often pitch their services as a better alternative than bankruptcy. They even assert that their way is the best for you to save yourself from bankruptcy.

Debt negotiators assure you also that their services will have little negative impact on your ability to get credit in the future. In the event that you have a negative rating with your credit score, they always guarantee that this negative information can be removed when you complete the debt negotiation program.

Debt negotiation is actually the process of negotiating with a creditor to pay off just a percentage of your unsecured debts like credit card balance.

Since this process is commonly used in debt arbitration, this type of solution to get settle debt is often in the best interest of creditors to negotiate appropriate debt repayment schedules. With debt negotiation, the firms usually tell you to stop making payments to your creditors directly. You send the payments instead to them as the debt negotiator. The firms then promise to put your funds in a special account and pay the creditors on your behalf. With most of their clients experiencing hardship, debt negotiators could be the final hope.

Only be wary with using this process though as many states have laws regulating debt negotiation companies and the services they offer. Their claims might just be an exaggeration and a false hope for your part. It always pays to check the fine print and do your homework.

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