Home: Debt Management Warnings - Debt Negotiation 1

Warnings Against Debt Negotiation & Debt Settlement Programs

In Debt Management, debt negotiation is often brought up in conversation. Debt negotiation is a program whereby companies offer to get you out of debt by merely holding your money and offering settlements to creditors at a future date. These programs are not what we would classify as a true debt management curriculum, and they can severely damage your credit rating. Many creditors will immediately forward your account to their legal department for collections and clients may find themselves faced with judgments, liens, and even garnishments.

Debt Management is entirely different as compared to debt negotiation. Debt Negotiation has a place, but where is it? Sometimes a debt negotiator forgets to mention a couple of issues that one needs to be aware of in advance.

Debt management is sometimes confused with Debt negotiation. Debt negotiation is also known as debt arbitration, or debt settlement. But hopefully, we will make the differences clear and define debt management and debt negotiation.

By utilizing debt negotiation or debt settlement programs there may be a far greater danger, as there is greater chance to credit damage by utilizing those services. There is a very lively and sometimes-heated discussion on the web forum entitled "cut your credit cards in half".  The reason for pointing this out is: this group consists of professionals within the industry who debate debt management versus debt negotiation.

Debt Management Differences

To begin, debt negotiation should be viewed and considered as a last-resort measure. It is only a half step before bankruptcy. The reason is: the lender has little motivation to arbitrate for a pay off less than the full amount unless the debtor is already 2 - 3 months behind on bills. This is exactly what negotiation is and which obviously means complete destruction of a credit history. Additionally, the debtor is dealing with debt owed to a lender who loaned money or property in good faith. The lender has the right to full payment if at all possible.

But, sometimes circumstances do occur that negotiation may be the only course of action remaining ... or at least the most logical solution. As an example, perhaps an old forgotten debt exists as the only blemish on a report. Debt negotiation may be the proper course. But, under normal circumstances of just too much debt, credit counseling should be the standard first attempt to reduce payments. 

The best option is Debt Management by consolidating your debt, which basically means that your debt management company establishes a new loan with lower payments since it is usually over a longer period of time and at a lower interest rate. But be aware that debt is only solving half of the problem, with the other half being an attitude, which allowed the creation of too much debt in the first place. Debt management also known as debt consolidation should be used when debts are mostly current. Settlement or arbitration is for use when debt is very delinquent. Similarly, debt management – debt consolidation should never be considered if the objective is simply to reduce monthly payments in order to afford more credit.

One last comment to consider 

Debt negotiation attorneys, Johnson & Johnson offer an interesting Q & A on their web site ... interesting but far from uncommon.

Q. When opting for debt settlement, why do you need 60% of the balance up front? Why can't I send you the funds once you have successfully negotiated my account?

A. At one time we allowed such a practice but, unfortunately, we discovered that many of our clients did not have funds available once the time came to disperse to their creditors. Thus, to avoid wasting time negotiating for clients who do not have sufficient funds, we do not begin negotiations with your creditors until you have deposited 60% of the funds into your account.

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