Debt negotiation myths

Debt negotiation companies negotiate on behalf of debt-ridden people with their creditors to reduce their balance and interest rates. These companies see to it that their clients have to make only one payment each month. Creditors often agree to a reduced payment as they do not want to lose the entire amount if the debtor files for bankruptcy.

No clean slate

There are, however, some myths about debt negotiation companies that should be dispelled. First, they cannot completely wipe your credit clean or give you a guarantee that they will reduce your debt. The fact is, an experienced debt negotiation company might succeed in reducing your debt between 10-50 percent after negotiating with your creditors. By reducing your debt and handling your monthly payments, they can also improve your credit score.

Effect on credit score

Second, do not get carried away by the claims of some companies that debt negotiation does have no effect on your credit score, or that they are capable of removing negative scores. In reality, creditors will report as usual accounts that have been reduced, and this will remain on your credit history for seven years. And even if your accounts are closed, all other negative scores including late or missed payments will be very much there on your record for a period of seven years.

The myth that debt negotiation is capable of reducing all your debts should be dispelled also. In fact, creditors are usually under no compulsion to carry on negotiations with you or a debt negotiation company. The situation can be different if you are found struggling to make payments. Under such circumstances, creditors may reduce the debt to recover at least some amount of money from you rather than losing the entire lot if you file for bankruptcy.

Not always cheaper

Contrary to popular belief, debt settlement is not always cheaper. You are often in the dark about those taxes that are likely to be paid once a settlement is arrived at. In this way, much of your ‘saved’ money disappears in tax payment. Debt settlement companies also do not get you out of debt faster. Many of them wait till your monthly payments accumulate to a level that they find big enough to begin the negotiating process with your creditors. It is better to stay away from companies that make tall claims or charge high up front fees. However, reputable debt negotiation companies can help you when you need them.