The Warning Signs of a Debt Negotiation Rip-Off

A debt negotiation program is not the same thing as a debt management plan or credit counseling. Debt negotiation is a very risky endeavor that can end up having a dramatically negative effect on your credit score and your ability to obtain loans in the future. In fact, because of this many states have laws to protect you from debt negotiation companies.

Debt Negotiation Program Claims

Many firms that handle debt negotiations will claim that they are not in it for any profit. You may also be told that they can negotiate with your credit card companies to lower the amount you have to pay off. Most often, they will tell you that they are the only alternative to bankruptcy. They might even say that their program will have no negative effects on your credit score and, if it does, you can simply have the negative items removed from your report at the completion of the program. Normally they will say that you should stop paying the creditors and send your money to them instead. Something else they often will tell you that they will set up a special account for your money and that they will pay your creditors for you.

The Truth of the Matter

Just because a debt negotiation firm says that they are for nonprofit, that does not mean that the services they offer are offering to you are legitimate. On top of that, they cannot tell you for sure whether your creditors will accept a partial payment on the amount owed. In truth, if you stop making payments, chances are late fees and interest rates are going to keep adding up.

Once these late fees have added up to the point where you have exceeded your credit limit, over-limit fees and penalties will accumulate. This means that your old debt could easily become two or three times the amount that you originally owed. On top of all of this, the supposed nonprofit companies charge outrageous fees and they have a fee for everything. In truth, your creditors are not required to negotiate with you at all. What they are required to do is report accurate information, including the fact that you missed payments, to credit reporting agencies.

In some of these situations, it is not unusual for the creditor to sue you for their money. They can end up having the ability to put a lien on your house and to automatically garnish your wages. On top of this, the IRS may end up coming after you.

Tip-Offs That the Company Might Be a Rip-Off

Here are some simple signs that a debt negotiation agency might not be legitimate:

  • If they tell you they can remove unsecured debt
  • If they tell you they do not have to pay the entire amount back
  • If they have extremely high monthly fees
  • If they tell you not to talk to your creditors or make any more payments to them
  • If they tell you have to send your monthly payments of them and not directly to your creditors
  • If they tell you that your creditors will not sue you for not paying them
  • If they tell you their system has no negative outcomes on your credit report
  • If they tell you that they can have negative information on your credit report completely removed

If you begin working with a debt negotiation company and they give you any of these signs, stop working with them immediately. Go to your Better Business Bureau, State Attorney General, or your consumer protection agency and check up on the company.