Why Debt Negotiation Companies Usually Aren’t Worth The Cost

Amidst current turbulent economic conditions, financial hardship is commonplace. The demand for debt negotiation and settlement services has also increased. Widespread economic crises have given rise to an innovative consumer finance concept known as the debt negotiation company.

Breaking free from destructive debt is an admirable goal and an understandably high priority. Recognizing this, many “professional” debt consolidation providers have opened shop. Some are legitimate firms and yield valuable results. Others, however, are predators bent on exploiting vulnerable consumers with excessive fees.

Any debt negotiation company will impose service charges. Typically, such fees take the form of monthly administrative fees and advance account setup charges. Suppose, for instance, that a debt negotiation company imposes a $50 monthly administrative fee and an advance account setup fees of $250 for a three-year plan.

In this instance, total fees would amount to $2,050. This is more than 20 percent of the outstanding balances of a consumer with $10,000 in outstanding credit card debt. In the long run, this substantial sum would be better applied directly toward debt reduction.

You Can Do It Yourself

Many “professional” debt negotiation and settlement service providers promise dramatic debt reduction and accelerated payoff schedules. Slashing more than half off your outstanding balances and current interest rates are common claims. Believe it or not, you can accomplish much the same results for yourself.

The last thing creditors want is for you to become totally insolvent. In such an event, they stand to receive little or nothing. As such, it is in their best interests to work with you to restructure debts into more manageable terms that you can afford.

Here is an excellent self-help strategy for effect debt negotiation and settlement:

Prepare a realistic monthly budget. First, tally your fixed expenditures for utilities, insurance, and other such necessities. Any remaining amount is your “discretionary income.” After determining your total monthly discretionary income, develop a proportional analysis. Offer reduced monthly payments based upon the total percent of that creditor’s obligation represents in your total outgo.

Suppose, for instance, that your monthly discretionary income is $600 and your mortgage and other periodic payments total $1300. If your normal monthly mortgage payment is $800, it represents 62 percent of your total monthly obligations. Offer a reduced payment of $372. This amount represents 62 percent of your current discretionary income. Do the same with each of your creditors until you have negotiated restructured debt terms that accommodate all obligations within your $600 monthly discretionary monthly income.