Monday, July 13, 2009

Debt Negotiation

There must be a lot of money to be made in debt negotiation. Just listen to all the advertising. Do you think they are out there for your benefit? They are trying to make money off you. It has gotten so bad that Attorney General's throughout the country are shutting the worst offenders down.

Here is my perception of how they work. First, your creditors will not negotiate with you when you are current with your payments. So, you must start missing payments. The reality is, you have to miss about six payments before you can get to someone with authority to settle the case. While you have missed six payments, late fees and interest accumulate. Thus, your debt becomes higher.

If you are using a debt negotiation company, they will likely charge you a monthly fee. At the same time you will start to put money away. After six months, when creditors are starting to talk to you, or the negotiator, a lump sum settlement amount will be negotiated. While it may seem like 50% of the amount owed, in reality it is probably closer to 75% or 80% of what it was 6 months earlier considering the new late fees and interest that has accumulated. And, you have ruined your credit.

A better approach may be to make minimum payments on certain debts each month while dedicating extra money to the lesser of your credit cards. Eventually, you will pay off that creditor. When that creditor is paid off, you move on to the next creditor until you are debt free.

Of course, this is much easier said than done, and takes a lot of discipline. But, the reward is worth the sacrifice.

5 comments:

幸運 said...

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公車 said...

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簡單嗎 said...

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Marc Brown said...

Hey! posted long back dude! The situation is completely different now in 2013. Yes, I agree that since there were lots of spam debt negotiation companies mushrooming, the attorneys general took initiatives to shed them off. But thanks to the BBB and other federal and state regulatory authorities, and moreover due to the FDCPA, consumers know their rights very well and now can even file complaints against those scam debt negotiation companies and sue them. However, its true that these companies are sitting there to make money out of you. Who else gives free counseling these days? If you want to be debt free completely, you need to drain at least some.