Your Debt, and Making it Worse.
This excerpt is from the Federal trade commissions website.
The full article is here: http://www.ftc.gov/bcp/conline/pubs/credit/kneedeep.htm
Debt Negotiation Programs
Debt negotiation differs greatly from credit counseling and DMPs(Debt Management Plans). It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.
Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.
Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.
Remember line one? "It can be very risky". Let me see if I understand the risk.
You hire a debt negotiator (for a fee).
They have great skill at negotiating, but no guarantees because your situation is bad.
Stop making payments! They advise you to stop paying your bills, and instead direct you to pay to an account managed by them, that they will use to pay your creditors, after they persuade your creditors to happily give up half of what they are owed (do to lack of payments the creditor has not become happier).
They advise you to direct creditors calls to them (If things are getting worse, you will not know until the debt negotiator tells you).
Two years go by and you have begun to relax. Your bills are being handled by the negotiator, the harrassing phone calls have stopped.
The Debt Negotiator calls.
Remorsefully the debt negotiator tells you that your creditor is a stubborn pain in the neck and unwilling to work with you. And he must have PMS because now there are penaltys, plus additional interest on the unpaid debt while they have been negotiating for two years. They are foreclosing monday morning.
But do not worry. You owe the debt negotiator nothing, because he has been collecting his fees from the account you have been paying into for the last two years.
It seems the best available advice (and I cannot believe I am saying this) may be from the Gov't.