No. of Recommendations: 0
Have you heard anything about this? I was doing some research on ways to pay off my debt and came across this. They basically negotiate with your creditors for settlements. You immediately stop paying minimum payments and you start sending a payment to a shared account with the negotiator. They offer the creditors a settlement since they are getting nothing from you but you are accumulating a small amount of money that should go to minimum payments. Interesting idea? but does it work?

-mark
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No. of Recommendations: 4
It "works," but you are not much better off than if you had filed for bankruptcy and the difference between the amount you settle for and your original debt is considered taxable income.

-A.
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No. of Recommendations: 4
They offer the creditors a settlement since they are getting nothing from you but you are accumulating a small amount of money that should go to minimum payments. Interesting idea? but does it work?


If you are going to do this- DO IT YOURSELF.
You do not need a third party to do this for you!!!
no one does anything for free- they will take a cut somewhere.

YOU can WRITE to the creditors (NEVER do this over the phone) and offer to settle for 25% to 50% of the actual amount owed. Usually the Creditor will expect payment in full either immediately or over a period of a maximum of twelve months.

If you make a settlement offer- get an agreement from the CC in writing before you speak to anyone from the CC

Serious Drawbacks to Doing this

1. you will be taxed at 28% for the amount of debt that the creditors write off - example: debt forgiveness of $10,000 - you now owe $2800 in taxes - you will receive a 1099 for that $$ as income

2.While not as bad as a BK on your Credit Report - an account marked settled is an indication that you are not willing to meet your obligations (looked upon similarly to a collection)

3.If you miss EVEN ONE payment on a settlement plan - all bets are off, your account goes back to the original amount, with all the additional interst andfees that you would have accumulated during your payoff time and you now have an even bigger problem.

Sometimes a settlement seems like the only option when the fees, interest, etc seem to take on a life of their own. But if you feel like you HAVE to do this on one card- try no to do it on everything- if you can legitimately pay down some of your debt and take a settlement hit on others, you will still- credit wise - be better off than settling everything.

been there done that - have the credit score to prove it.

peace & settlements
t
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No. of Recommendations: 1
If you're seriously considering this option, bankruptcy would be better.

When you stop paying your bills, know what happens? Your credit report gets dinged MASSIVELY. 30 day late, 60 day lates, 90 day lates, adding on interest, late fees, over the limit fees, etc. So, your debt doubles because most companies won't negotiate terms until you are 6 months late and in collections. The amount you end up paying off will probably almost be the amount of your original debt.

The company doesn't really do anything for you that YOU can't do yourself, and they charge you money to do it.

If you are this desperate, there are other things that work much better. Consumer Credit Counseling Services that may be able to help reduce your minimum payments and/or interest rates. Your credit report may reflect, on some accounts, that you are in counseling, but unless you're buying a house, it's not a big ding, AND it will be removed when you finish the program.

There's also the do-it-yourself snowball, if your cash-flow is currently decent and you aren't actually behind on things now. (lots of info about that here!)

Ishtar
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No. of Recommendations: 0

My sister did this once. When she managed to pay off one credit card, instead of applying that portion of the payment to the next highest interest card, they split it up across all the creditors. A very inefficient way to pay. She eventually dumped them and paid the creditors herself.

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No. of Recommendations: 6
From the section 2 of the FAQ:
----------------------------------------------
Is signing up for a debt reduction service a good idea? They promised to settle my debt for "pennies on the dollar." -
In a word, NO. Several reasons:
1) No matter what the ad for the agency tells you, your credit record will be destroyed for seven years. Massive settlements for far less than the amount owed will look about as bad as a bankruptcy.
2) You don't need to pay someone to not pay your creditors and then settle for less. You can do that yourself for free. If you really want to destroy your good name, and go back on your good-faith promises and contractual obligations to your creditors, no need to pay anyone to do that for you. Simply stop sending your creditors money. In short time, they will begin harassing you for payment while destroying your credit record. (They will do this with or without the help of an agency.) You can settle then.
3) You will probably owe income taxes on the forgiven amount. At the end of the year, the settled creditor will probably send you (and the IRS) a 1099, detailing the amount forgiven. (The ad you saw on TV didn't mention that, did they?) You will owe your marginal income tax rate on that amount. This instantly reduces the amount of the "settlement" by whatever you are going to owe in tax in one nasty lump sum.
4) Really, it's a bad idea, trust us. We don't work for your creditors, and we still think it's not a good thing to do.

-----------------------------
Also in the FAQ is information on legitimate credit counseling.

SirWired
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No. of Recommendations: 2
Interesting idea? but does it work?

Mark,

I saw this news story on Good Morning America called "Out of the Frying Pan …Debt Negotiating Can Land You Deeper in Debt" The title really says it all but here is the link to the story:

http://more.abcnews.go.com/sections/gma/goodmorningamerica/gma020326debt_reduction_pitfalls.html

PLEASE READ THE ARTICLE!

And from this other link: http://www.consumeraffairs.com/news02/ftc_credit.html

I copied this:

"A California firm calling itself a "debt negotiation" company promises financially strapped consumers that it could reduce their debt and restore their credit by negotiating with creditors. But the company does little other than charge exorbitant fees while consumers stop making required payments to their creditors and plunge deeper and deeper into financial ruin. "


Utahtea

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No. of Recommendations: 0
Have you heard anything about this? I was doing some research on ways to pay off my debt and came across this. They basically negotiate with your creditors for settlements. You immediately stop paying minimum payments and you start sending a payment to a shared account with the negotiator. They offer the creditors a settlement since they are getting nothing from you but you are accumulating a small amount of money that should go to minimum payments. Interesting idea? but does it work?

Most all of these companies lie somewhere between crooked and incompetent. I would stay away from them, personally.

Leviathan
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No. of Recommendations: 4
I have to thank all of the replies that you have sent. You all have saved me a lot of money it seems. This information alone is worth the $30 for the year that I paid to join Fool.com

Thanks again
Mark

P.S. Now to formulate my debt payment plan.
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No. of Recommendations: 0
P.S. Now to formulate my debt payment plan.

Hell, if you want to save even more, make sure you post it here as you come up with it, so you can get help from the Fool community on what to do right and what to avoid.
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