Before you sign up for any debt negotiation services, you need to know all about this. If you think it is the same as some debt management plan or credit counselling, then you are mistaken. The reason you need to take care before going for any such plan is that it can affect your credit rating.

Let us have a look at the claims that these companies usually make. They will promise you that they will negotiate with your creditors and as far as your unsecured bills are concerned, they will get you a discount of somewhere between 10 and 50 per cent.

You will often see them advertising as being an option to bankruptcy. They will also claim that your credit rating will not be affected in any way if you use their services. They will often arrange for you to make payments to them instead of your creditors, under some debt negotiation program.

While they will make many big claims, the truth is somewhat different. Now, you will often see them label themselves to being non‑profit. This label alone is not enough to ensure their being legitimate. Besides, no one can guarantee that any lender will accept only a part of a legal debt. The truth is that if you stop your payments to your credit cards, you will actually incur late fees as well as added interest and charges.

Meanwhile, if you happen to go over your limit, then all the additional charges and fees will also come along. If you know enough about credit cards then you will know that all this alone can cause your debt to become two or three times its original size.

In addition to these fees, you will also be required to pay fees to the debt negotiation companies in the name of service charges, signing up charges and finally, a predetermined percentage of any savings that you will allegedly make.

While sometimes creditors do humor such negotiation deals, they are not under any obligation legally to do so. Hence, no one can promise any results from negotiation. On the other hand, you might actually end up doing more harm for your credit rating than doing good.

In fact, if you stop making payments to your lenders, they can even sue you. Hence, it is better to understand the lies of such debt negotiation companies before you bear their consequences.

You should stay miles away from debt negotiation firms that will promise to get rid of your unsecured debts, require you to pay quite a big monthly fee, demand a percentage of any savings you make. Instructing you to stop making payments to your lender, should also be a red signal for you.

If you do want to seek help from any such company then you should at least check it with the Better Business Bureau or with the state Attorney General.

Most of the time they are unable to negotiate substantial reductions in the amount consumers owed. And as the result of purchasing defendants’ debt negotiation services, consumers’ credit ratings suffered, their total debt increased, and that some consumers even became the target of legal action.

In fact, experts say there is no guarantee that debt settlement companies can persuade a credit card company to accept partial payment of a legitimate debt.

You've probably seen lots of tempting ads on TV (or heard them on radio) that promise to erase your debt for pennies on the dollar. Before getting involved with any debt negotiation agency, be sure to research the firm with your state Attorney General and your state's consumer office.

One client recently asked:

There has been an increase in advertisements for debt negotiation agencies that are different from debt consolidation. They state that they can negotiate your debts down rather than consolidate. I already checked with a reputable consolidation agency and the consolidated monthly payment is more than my combined monthly minimum payments which I cannot afford. Are these debt negotiation agencies a viable alternative or a sham? Are most debt negotiation agencies really a way to scam good people out of their money? My vote would be that a debt negotiation agency is more likely a scam, but there may be some good ones out there. The FTC has closed down many of them because instead of helping consumers pay off their bills, they've driven them to bankruptcy. Often the FTC works with the state attorney general in bringing these cases. Here's how most of the scams work:

* They'll ask for money upfront as a retainer (most of that goes to the telemarketer who signed you up)

* They ask for a list of your creditors and total amount of your debt.

* They usually asked for monthly administrative fees of $30 to $40 a month and they'll take a percentage of what they save you.

* They tell you to stop paying your creditors because then they can make a hardship case for you.

* They tell you to put the money you would normally pay your creditors into an account and as that account balance builds up and you have enough to pay off a creditor, they will negotiate settlements of pennies on the dollar.

* They usually do nothing for two or three months and by that time you'll be hounded daily by collectors.

* Often they never do anything to help pay off your debt.

Consumers who get caught up in these schemes usually end up in worse shape then before they started with the debt negotiation agency and have nothing left to do but file for bankruptcy. I'm sure you've heard the phrase, if is sounds too good to be true, it probably is. Well for most negotiation agencies the deal is too good to be true.

The best way to find help with your debt problems is to work with a non‑profit credit counseling service or speak with an attorney who can give you all of your options, including bankruptcy.

Settling Your Credit Card Debts

1. (NAPSI)-Consumers with overwhelming credit card debt may be tempted to seek help from companies that promise to erase their debt for pennies on the dollar, but the Federal Trade Commission (FTC), the nation's consumer protection agency, urges caution.

Debt settlement companies claim they can negotiate with your creditors to reduce the amount you owe. Some say they can arrange for your debt to be paid off for a much lower amount--anywhere from 30 to 70 percent of the balance you owe.

But there is no guarantee that debt settlement companies can persuade a credit card company to accept partial payment of a legitimate debt. Even if they can, you must put aside money for your creditors each month and pay the hefty fees that debt settlement companies charge before they settle any of your debts. On top of that, you may have to pay a final fee to a debt settlement company that's a percentage of the money you've supposedly saved. Meanwhile, it may be months--or even years--before the debt settlement company negotiates with your credit card company to settle your debts. And, if you stop making your payments in the meantime, the credit card company will usually add late fees and interest to the debt each month. That can cause your original debt to double or triple.

When You're in a Hole...

The FTC suggests that the first thing you should do if you are having trouble managing your credit card debt is contact your credit card company and try to negotiate a settlement, even if you have been turned down before. If at first you don't succeed, be persistent.

Another option is to contact a credit counselor. A new law requires credit card issuers to include a toll-free number on their statements that directs cardholders to information about finding nonprofit counseling agencies. Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops.

If you decide to pay a company to negotiate your debt, do some research. Consider other people's experiences. One way to do that is to enter the company name with the word "complaints" into a search engine. Read what others have said.

Red Flags

The FTC suggests it's best to avoid any company that promises to settle your debt if it:

· touts a "new government program" to bail out personal credit card debt;

· guarantees it can make your unsecured debt go away;

· tells you to stop communicating with your creditors;

· tells you it can stop all debt collection calls and lawsuits;

· guarantees that your unsecured debts can be paid off with pennies on the dollar;

· requires that you pay the full fee within the first few months.

More from the FTC

Debt Relief Services

If you’ve maxed out your credit cards and don’t know how you’re going to pay off your debts, you may think that a company that promises to erase the debt for pennies on the dollar is the answer to your prayers. Not true! Debt negotiation can be risky, and it can have serious, long-term consequences for your credit report and your ability to get credit in the future.

To Do

If you get a sales pitch from a debt relief firm, pay attention to the details. Stay away from any company that:

promises that unsecured debts can be paid off for pennies on the dollar. The truth is that there is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet always is to contact your creditor directly and as soon as you are having problems making payments.

requires substantial monthly service fees and demands payment of a percentage of what they’ve supposedly saved you. The truth is that most debt relief companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee – a percentage of the money you’ve supposedly saved.

tells you to stop making payments to or communicating with your creditors. The truth is that if you stop making payments on a credit card, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score also will be hurt by not making payments.

claims that creditors never sue people for not paying their unsecured debts. The truth is that creditors may have the right to sue you to recover the money you owe. And sometimes, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

claims that they can remove accurate negative information from your credit report. The truth is that no company or person can remove negative information from your credit report that is accurate and timely. It’s illegal.

Credit Repair

Everyday, companies target people who have poor credit histories with promises to clean up their credit reports so they can get a car loan, a home mortgage, insurance, or even a job – after paying a fee for the service. The truth is that no one can remove accurate negative information from your credit report. It's illegal.

1. What You Need to Know

When negative information in your report is accurate, only the passage of time can assure that it will be removed. A consumer reporting company can report most accurate negative information for seven years and can report bankruptcy information for 10 years.

If you get an offer to repair or fix your credit, how can you know if it’s legit? Here are some signs that should set off alarms in your head – and make you put the offer in the trash:

The company wants you to pay for credit repair services before they provide any services.

Fact: Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the credit repair services they promised.

The company doesn’t tell you your rights and what you can do for yourself for free.

Fact: The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. This investigation doesn’t cost any money.

The company recommends that you don’t contact any of the three major national consumer reporting companies (Equifax, Experian, and TransUnion) directly.

Fact: Under the Fair Credit Reporting Act (FCRA), the consumer reporting company and the information provider (the person, company, or organization that provides information about you to the consumer reporting company) must correct inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider in writing.

The company tells you they can get rid of most or all the negative credit information in your credit report, even if the information is accurate and current.

Fact: Any credit repair company that claims to be able to legally remove accurate and timely information from your credit report is lying. There’s no easy fix for bad credit. Improving your credit takes time and a conscious effort to pay your debts.

The company suggests that you apply for an Employer Identification Number to use instead of your Social Security number so you can invent a “new” credit identity – and then, a new credit report.

Fact: If you follow illegal advice like this, you may find yourself in hot water. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, or to get an Employer Identification Number from the Internal Revenue Service under false pretenses. You could be charged and prosecuted for mail or wire fraud if you use the mail, telephone, or Internet to apply for credit and provide false information.

Advance Fee Loans

If you’re looking for a loan or credit card but don’t think you’ll qualify – or if you’ve been turned down by a bank because of your credit history – you may be tempted by ads and websites that guarantee loans or credit cards, regardless of your credit history. Should you apply, you’ll likely find out that you have to pay a fee just for the promise of the loan. Best to ignore these ads or sites.

If you have to pay a fee for the promise of a loan or credit card, you’re dealing with a scam artist. More than likely, you’ll get just an application for a credit card, a stored value or debit card, or a card that has so many strings attached, it’s practically worthless.

To Do

Be alert to tricks of the advance fee loan trade so you can avoid them. For example,

A lender who isn’t interested in your credit history is cause for concern. Ads that say “Bad credit? No problem,” “We don’t care about your past. You deserve a loan,” “Get money fast,” or even “No hassle – guaranteed” often indicate a scam.