Debt negotiation is not the same thing as credit counseling or a Debt Management Plan (DMP). It can be very risky and have a long term negative impact on your credit report and, in turn, your ability to get credit. Thats why many states have laws regulating debt negotiation companies and the services they offer.
The Claims
Debt negotiation firms may claim theyre non-profit. They also may claim that they can arrange for your unsecured debt typically, credit card debt to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 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 $4,000.
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...
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