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Credit Education > Debt Management Help > Getting into Trouble with Debt Negotiating Companies

Getting into Trouble with Debt Negotiating Companies

By Janet Lacey
Published: Sunday, December 27th, 2009

Debt negotiation may sound the same with debt settlement, but these two concepts of managing debt are entirely different. Settling a debt in the general sense is the effort of the borrower to make his or her creditor to accept a lower payment schedule because the borrower will not be able to pay the debt otherwise. Debt settlement assures the creditors that payments will still be made above the principal borrowed money however lower than the first agreed value. On the other hand, debt negotiation is one of the debt strategies that are continually consulted to supposedly professional companies of the trade. In reality, debt negotiation just like debt settlement can be done by the borrower herself or himself.

Managing debt through debt negotiation companies would mean that the borrower will allow this company to negotiate his or her debts through a trust account. Debt negotiating companies are legal business entities, but not licensed financial entities from the Federal Reserve. These companies are more like brokers of debts. While brokering they are also profit oriented companies that see clients as their means of making profits. They are not bad companies or illegal companies, they are just like any other companies that sell goods and offer services.

The trust account that is set up by the debt negotiating company for a specific borrower by theory will save money until the borrower’s debt is paid off. The company is negotiating the debt of the borrower by asking the borrower to put some money in the trust fund account that they have made for the borrower. Negotiating companies do not charge interest rates on the time duration that they are negotiating for the borrower, but they are charging administrative fees for their services. Due to these companies, managing debt has been taken into a new field of professionalism and servicing.

Unfortunately, even if the concept of debt negotiation is good and knowing that there are existing debt negotiating companies is better there are downsides in this business that would still need polishing. There are two major downsides of this strategy on managing debt- expensive fees and lack of accountability. These companies generally downplay borrowers by not letting the borrower’s creditor know that the company is negotiating the debt of the borrower. This simply implies that the creditor is unaware and has not approved the debt negotiation in the first place.

Many borrowers think that while saving up to pay their debt, these companies on the other hand are talking with their creditors. The sad truth is no. There are even cases where the borrower is sued by his credit card company because of nonpayment status. Even if the borrower claim that he has been saving up through a debt negotiating company to pay up the debt, the debt negotiating company does not take accountability for such legal dilemma. Adding up to the problem of accountability is expensive administrative fees. Managing debt through these companies if unchecked by the borrower can even charge higher for admin fees as compared to the interest rate of the original debt.

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