Debt-settlement firms promise they can negotiate your credit card debt down to just pennies on the dollar. But are they true to their word?
Too often that promise is an illusion. You usually pay an upfront fee to the debt-settlement firm, plus a monthly retainer. Their strategy is to get you to stop paying on your bills. They typically have you take the money you would have paid on monthly minimums and stash it in a savings account.
The basic idea is to make the credit card companies so desperate that they'll settle with you. The reality, however, is that you just wind up damaging your credit.
Did you know that you can negotiate down your debt by yourself? Begin by figuring out what you owe and what you can afford to pay. Then call up your various creditors and say, "My total debt is X number of dollars and I can afford to pay you X amount every month."
Set a condition that all of your creditors must agree to your terms
in writing or no one gets anything at all. And don't give them access to your checking account! You'll want to pay them directly to safeguard your funds.
It's important to know that this approach
will foul up your credit and you'll get a tax bill from the IRS for each settlement. If you owe $10,000 to one creditor and they take $2,000, then the $8,000 that's written off is considered taxable income for you.
The power you have lies in the fact that credit card companies are scared you'll go bankrupt and then they get zero. More than a million people are expected to file bankruptcy in 2009. That means creditors that wouldn't deal with you before now probably will.
Finally, there is another option. You can use
NFCC.org to pay off your debt over time in a negotiated settlement. Those who are particularly burdened may qualify for a hardship debt-management plan (DMP) through the above link.
