What to Expect with Debt Negotiation

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Debt negotiation can be a confusing topic. With the recent credit crisis, many consumers have opted to use debt negotiation. Some debt negotiation companies were scams, and the U.S. Government Accounting Office (GAO) recognized questionable practices by debt negotiation companies in its April 22, 2010 financial report.

Not all debt negotiation companies are bad. Understanding the way they should work will help you not only prepare financially but also alert you if a scam is in the works.

  • To pay for your debts, debt negotiation companies set up a “trust” into which you deposit funds.
  • Make sure you read all of the paper work concerning the settling of your account with this “trust.” Scammers could set up a fund and never inform your creditor about the agreement they have with you.
  • Be sure you understand how much of your payments go towards satisfying your account with your creditor. To do this, secure information from the debt negotiation company stating what percentage of your payments are going towards the debt.
  • Credit card debts are the only type of debt that can be handled by a debt negotiation company.
  • Be sure you understand your legal protection before agreeing to use a debt negotiation company. A legitimate company will make this clear to you.
  • Find out how much of your initial payments will go towards debt negotiation company fees. Fees should be expected, but be sure to understand how much and what all of the fees are before making any agreements.
  • Be sure you have a copy of your contract on file and that you thoroughly understand everything in it. A legitimate debt negotiation company will answer your questions and be up front with you. Any evasiveness in explaining all of the terms of your contract are a tip off that you are dealing with a scammer.

There do exist many problems with debt negotiation, and the government has addressed these problems. Since reform of corrupt practices will take an extended period of time and there are legitimate companies willing to do business with you, cautious proceedings as opposed to complete abstinence from dealing with debt negotiating companies is the best route.

Getting out of debt is not an easy task, but with cautious planning and astute attention to detail, a credible debt negotiation company can be found, making financial freedom a real possibility.


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