What is a debt negotiation program?

About debt negotiation programs

Debt negotiation programs offer consumers the opportunity to repay debt at a fraction of the actual debt. Many consider this to be one of the more risky ways for a consumer to resolve debt issues.

For people who have a large amount of debt, especially unsecured debt like credit cards or medical bills, this can seem like an attractive alternative to bankruptcy. Most of these plans offer to hold a consumer’s money and pay their creditors for them.

This is a very risky way to reduce debt, and it is difficult to find reputable service providers. Many things can go wrong. Creditors are under no obligation to accept partial payment of debt. If a consumer stops payment, and the creditor doesn’t recognize the debt negotiator’s payments, or the debt negotiator never makes them, late fees and interest accrue and can make the consumer’s situation worse.

In addition, the fees the debt negotiation company charges may be very high and include things like an account establishment fee, a monthly service fee, and even a final fee that is percentage of the money "saved" by using the service.

Although the lure of paying off debt at just a fraction of the cost is high, there are many challenges with using this type of service. The Federal Trade Commission (FTC) goes into detail about why these services may not be a good idea for many consumers.

In fact, because of the risks for the consumer in this type of relationship, many states closely regulate debt negotiation companies and their services. Consumers considering using this type of service should first check with the FTC, their local consumer protection agency, and their state attorney general, to find out more.