| Debt negotiators can crush your credit |
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| A long and
expensive road
Resolving debt through a debt negotiator is a long and
expensive road. Even if all goes well, you'll be left with a banged-up credit
record and you may owe taxes on any debt that is wiped away. And not all debt
negotiators are on the up and up. Some consumers pay high fees and never get any
of their debts settled through a debt negotiator or debt-settlement company.
"There are nonprofits and
for-profits in this business with various degrees of credibility," Wilkman
says.
One of the more recent debt negotiators
to reach the hot seat for allegedly shoddy business practices is
New Leaf Associates LLC, based in New Port Richey, Fla.
Alleging
the firm claimed it had a "legal administrative process" to totally
wipe out credit card and student loan debts for their clients, the Florida Attorney
General filed a lawsuit
against New Leaf Associates on July 7. According to the state, New Leaf collected
fees from approximately 2,200 clients but actually terminated no debts. People
with just a few thousand dollars of debt would do well to steer clear of debt
negotiators altogether. A debt-management program may be a better option. When
you enroll in a debt-management program, you write a monthly check to the credit-counseling
agency and the agency pays your creditors. In a typical debt-management program,
a card issuer will charge lower interest rates, stop charging late fees and contribute
money to the debt-counseling agency. A debt-management plan usually lasts three
to four years. A visit to a reputable
credit-counseling agency may help you determine if a debt-management plan might
be right for you.
Be sure to choose your counseling help carefully. There
are some pretty shady operators running so-called counseling agencies these days.
Tips
on finding the right kind of credit counseling help can be found elsewhere in
this guide. Do-it-yourself debt
help
You may be able to negotiate a lower payoff
amount from a credit card company on your own as well. You'll never know if you
don't call and ask. "Most creditors
are willing to work with consumers," says Edward J. Johnson III, president
and CEO of the Better Business Bureau
in Washington, D.C. "Their interest is in getting the money back." So
give your creditors a call and ask for a lower payoff amount. Richard
has worked with consumers who were able to settle card accounts by paying 60 percent
of the balance. All they did was call and ask. "They
can do this themselves. The creditors are willing," Richard says. "You
don't need to hire someone and pay a lot of fees." But
you do need to have plenty of cash available to make a settlement offer. If you
don't have the cash, try asking for a break on your monthly payment amount or
a lower interest rate. If you're
still game to try a debt-negotiation program, be sure to choose the company carefully.
Contact the Better Business Bureau
to see if the firm has had any consumer complaints. Check with your state attorney
general's office or other state consumer agencies to find out if there are any
pending legal investigations. "Look
into these places," says Deanne Loonin, staff attorney with the National
Consumer Law Center in Boston. "What are they doing for you first of
all? What kind of track record do they have?" What
kind of fees do they charge? Are there upfront fees? How much do they charge for
negotiating a lower payoff amount with a creditor? Don't
forget to check for debt negotiation programs run by credit-counseling agencies.
These programs tend to charge lower fees. And
be sure to run a background check on a credit-counseling agency before your first
visit. Not every nonprofit counseling agency has your best interest at heart.
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