A Debt Negotiation Service

And The Consequences Of Using One

In Parts 1, 2 and 3 of this discussion on what exactly a debt negotiation service must disclose to you prior to you enrolling in their service, we talked about fees, saving money and how long the program would take. (Here is a link to the beginning of the discussion on debt settlement law disclosures.) In Part 4 (below) we'll take a look at what debt negotiators must disclose if they require you to stop paying your creditors once you enter their program.

Disclosure #4: Consequences Of Failing To Make Payments To Creditors

As I have said many times, hiring a debt negotiation service is only appropriate for you if you are experiencing some form of financial hardship that makes it next to impossible to continue paying your creditors on time, or at all. Debt settlement is not meant for people who have the ability (either now or after putting in some hard work to get on a budget etc.) to pay off their unsecured debts but just don't "feel" like it. To put it more bluntly, debt settlement should only be used as an alternative to filing for bankruptcy, not as a vehicle to reduce the amount of debt you owe because your too lazy to pay it back.

If you are considering seeking the help of a debt negotiation service, there is a strong likelihood that you have either stopped making payments to your creditors, or at the very least have missed some payments along the way. Even if you are current with your payments, if you are experiencing financial hardship, there is a good chance that this won't last long. Regardless, you should know that in order for the debt settlement process to work, you must stop paying your unsecured creditors once you begin the program.

Your creditors will see no need to negotiate a settlement if they are still be paid on time. So if a debt negotiation company does require you to stop paying your creditors as a condition of entering their program, they must disclose to you the potential consequences of doing so, ie...

  • both your credit score and your credit report will be severely damaged
  • your creditors might hit you with increased interest charges, late fees, penalties, etc. that will increase the amount that you actually owe. For example, by the time you actually settle a credit card debt, you may owe much more than the balance that was on the account when you enrolled with the debt negotiation service once the above fees are factored in to the equation.
  • just because you enter a debt settlement assistance program, you are not immune from being sued by your creditors or from being pursued by collection agencies. This is not like bankruptcy.

In order to make sure that you are actually saving money to make future settlement payments (and to pay their fees when you do) a debt negotiation service may require you to  deposit money into a dedicated bank account  once you  enroll in their program.  To learn more about what they need to disclose to you regarding this account, click here.

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