MONEY AND FINANCE

Debt Negotiation Programs

Debt Negotiation Programs

Debt negotiation is the term applied to an agreement between the debtor and creditor in which the creditor agrees to accept a reduced balance that will be regarded as payment in full for the debt. Debt negotiation programs are also known as debt resolution debt arbitration, or debt setllements by people in the industry. No matter what term you use, the process is the same.

Debt Problems are facing many Americans in the form of medical bills. Debt settlement is a necessary tool in this economy. However, it has become rife with far too many less than reputable companies. Hence, it becomes mandatory to take precautions before you sign on the dotted line with any debt settlement company.

Precaution dictates any person in debt should ask questions as their first line of defense. Researching the companies would be the second line of defense. The following is a list of questions to ask to help you decide if the company is right for you.

1. What are your fees?

A reputable debt negotiation company will base its fees on performance and results. This is only reasonable. However, most companies charge a flat fee based on a percentage of your debt amount. If the person you are speaking to tells you they use this charge method, you should take this as a red flag. As you may imagine, this creates an immediate problem. They are collecting their fees up front, before your debt is settled. What if they go out of business? You will be left holding the bag. I believe the majority of fees should only be paid after the work is done. In fact, your state law may require that the fees not be paid until the work is done. Check your local laws.

2. Are you being paid commission?

Sometimes the person at the company is working on commission. Working on commission isn’t necessarily a bad thing by itself but it could lead some people to stretch the truth or leave out vital information. That is why it is important to know how they are paid. If they are paid by commission only, that could be a possible red flag.

3. Do you have a money back guarantee if I change my mind?

You should be given a 30 day grace period to think over the debt settlement arrangement you just entered. Sometimes it isn’t the right thing for you and you don’t realize it until you are 15 or 20 days into the arangement. If the company doesn’t give a full 30 days, you may not wish to enter into an agreement with them.

4. If I have faithfully made my payments for one year and you haven’t settled any of my debt, how much money would I get back if I decided to quit?
Many companies keep the fees they charged your account whether or not any of your debts have been settled. Companies charging fees based on a percentage of the debt and not tied to results, will probably refuse to make any refund of your fees. Make sure you get a firm answer because you will have a lot of money sitting at the company.

5. How long have you been in the debt settlement business and how much debt have you settled?
These are actually two questions but they are related. If it is a start up or brand new in the business, this means they have very little experience. Always be leary of a company that cannot provide proof of their experience.

6. Can you stop my creditors from calling me?

No company can guarantee they will stop all creditor calls. That is simply not possible. Anyone who says they can is not being totally truthful.

7. Will you be making monthly payments to my creditors?

Creditors are not paid until a mutually agreeable settlement is negotiated and approved. Therefore, settlement companies do not make monthly payments to creditors. That is simply how the business works. Anyone saying otherwise is less than truthful.

8. Can I get sued?

A creditor can always sue you. If you are told anything else, a red flag has just been raised.

9. Will this have a negative effect on my credit report?

Contrary to what most people think or believe, all debt management programs will have a negative impact on your credit report. Think about it. You are debt and are not paying as agreed. The settlement agreement is meant only as a management tool. Your credit won’t improve until you meet your agreements and pay the creditor(s).

10. When can I expect my first settlement?

While this isn’t locked in stone, your first settlement should be made within the first 12 months from the inception of your program. Any longer than 12 months is unreasonable and the company that tells you this is probably not a good match for you.

11. Are there tax consequences I should be made aware of?

The IRS considers forgiven debt as income. However, it may not always be a taxable event. If the person with whom you are speaking doesn’t answer your question to your satisfaction, this company may not be right for you.

12. Who is holding my money while I’m waiting on a settlement?

This is a very important question. Your funds should always be held at a third party escrow company and in an FDIC insured trust account. Any company telling you to save your own money or to send the funds to them is probably not right for you. If you plan on settling your debt, you need to have the money available to pay the creditor(s) when the agreement is negotiated.

The above questions are suggestions and may or may not fit your particular situation. If they don’t, ask the questions that suit your situation. The important point is to ask questions and get the answers to those questions. With your questions answered, now you can move onto researching the company. That is peace of mind.

Money and Finance

Debt Negotiation Programs