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Debt negotiation programs and the risks for debtors

A debt negotiation program is not the same as a debt management plan or credit counseling. These programs can be beneficial, but some can be harmful to your credit rating, so it's important to consider your options before deciding to pursue a DNP.

A DNP is also known as a debt settlement company. These companies may claim they can cut your owed debts by as much as 50 percent, but that isn't always the case. Some may also claim that the services won't negatively impact your credit rating, but beware of this claim, because many times these programs can leave consumers with a poor credit profile that has to be rebuilt over time.

Remember that in order to negotiate your debts, you may find that the DNP waits until your debts are several months overdue. At that point, you can see your credit rating dropping quickly, since delinquency notices will be filed. You could also be facing lawsuits, liens, or wage garnishments at that point, all because of the long waiting period before negotiations could begin.

How do you know which program to avoid? If the program guarantees you to remove your unsecured debts in full, charges high fees each month, tells you to stop making payments to creditors, or tell you the arrangements won't hurt your credit rating, it's time to take a step back and avoid the program. It could be a poor program or one that takes advantage of you in an already difficult situation. Your attorney can help you understand the alternatives, like bankruptcy or debt negotiation with a debt management plan, which may be better options.

Source: FindLaw, "Debt Negotiation Programs," accessed Dec. 30, 2015

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