You are here: Home Finances Credit: Score, ... Debt Negotiation ... Summary
Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
Information about all aspects of health care from choosing a doctor and treatment, staying safe in a hospital, to end of life care. Includes how to obtain, choose and maximize health insurance policies.
Answers to your practical questions such as how to travel safely despite your health condition, how to avoid getting infected by a pet, and what to say or not say to an insurance company.


Debt negotiation firms were formerly known as Debt Consolidation Companies or Debt Settlement companies. The industry seems to have changed the name because of the bad press some of these companies received.

The goal of reputable debt negotiation firms is to arrange to lower the amount of your unsecured debt.

Debt negotiation differs greatly from Credit Counseling Services and Debt Management Programs. Debt negotiation only attempts to reduce the amount of your debt. There is generally no counseling to help prevent the situation again. If you are looking to negotiate your debt, consider a reputable Credit Counseling Service -- especially one that works for you for free. (For more information, see the document in "To Learn More.")

Since there has been so much abuse in the debt negotiation field, if you do want to work with a debt negotiation firm, choose one with care. Also think carefully before agreeing to stop making payments on your debt while the company negotiates with creditors. 

NOTE: Keep in mind that you may owe income tax on any debt that is forgiven. If you have a question, review IRS Publication available at  offsite linkor speak with an accountant. 

To Learn More

What A Debt Negotiation Firm Does

A debt negotiation firm attempts to convince your creditors to accept less than you owe as full payment of your unsecured debt. Unsecured debt is debt which is not secured by an asset such as a house.

Debt negotiation firms typically claim that they can arrange to pay off your unsecured debt at 10 to 50% of the balance owed. If you owe $10,000, the company may claim it can get rid of all your debt for $1,000. The company may also claim to be a good alternative to bankruptcy.

Debt negotiation firms usually tell you to stop making payments to your creditors. Instead, these companies want you to send payments to them. The firms promise to hold your funds in a special account and pay your creditors on your behalf.

Most debt negotiation companies charge consumers substantial fees for their services. Fees can include:

  • A fee to establish the account with the debt negotiator.
  • A fee equal to a percentage of the money the firm saves you.
  • A monthly service fee.



How To Choose A Debt Negotiation Company

Check the firm's reputation

There are many disreputable companies that take your money and provide little, if anything, in return. In fact, they may even make the situation worse.


  • How long the company has been in business. The longer, the better.
  • Whether the company is a member of the Association of Settlement Companies (see: offsite link)
  • The company's reputation with your state Attorney General, local consumer protection agency, and the Better Business Bureau offsite link. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is. (You can find the contact information for your state's Attorney General at: offsite link)

Do not rely on a company's not-for-profit status

Do not rely on the fact that the firm is non-profit, even if it is. There is no guarantee that the services they offer are legitimate. 

Before You Do Business With A Debt Negotiation Firm

Check services and fees

Find out what services a business provides and what it costs.

  • Do not rely on verbal promises. Get everything in writing.
  • Read your contract carefully. Preferably have a lawyer look it over as well. You may even be able to find a lawyer who will work for free. (See the document in "To Learn More."
  • Reputable companies charge a fee based on the money they save you - plus modest fees to start. For example, a few hundred dollar fee plus 15 - 25% of the amount of money the company saves you.

Some companies guarantee to loan you money if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow-up on these advance-fee loan guarantees. Legitimate creditors never guarantee that a consumer will get a loan - or even represent that a loan is likely.

Consider whether the company warned you of the downside of debt negotiation.

For instance: 

  • If the company wants you to stop making payments to creditors, did it warn you about the consequences described below?
  • Did it tell you that any forgiven debt may be taxable income?

Think twice before stopping payments

Some debt negotiation firms suggest you stop making payments while they negotiate a reduction in the debt. You do not have to agree. If you do stop making payments while a reduction is being negotiated:

  • Late fees and interest are usually added to the debt each month. In fact, late payment may even cause the interest rate to increase. If the total debt exceeds your credit limit, additional fees and charges can be added. The result can be that your original debt doubles or triples.
  • Your credit score will be hurt, perhaps substantially. (If you are already behind on your payments, the impact on your credit score will be less since the late payments are already likely reflected in your credit score.)
  • You will get calls from collection agencies and you may even be sued by your lenders.

To Learn More