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Debt Settlement/Negotiation

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#1 radi8

  • Admin
  • 27,405 posts

Posted 15 July 2009 - 12:22 AM

A DMP is a "Debt Management Plan". This is an agreement between you, your creditors and a credit counselor, often providing for lower interest rates and fee waivers in exchange for your monthly payments. Normally the agreement is to pay the creditors in full, less the waived fees and interest.

Debt settlement or Negotiation is a different concept.
With a debt settlement plan, you STOP paying your creditors and divert money into a settlement account. Once you have accumulated a sufficient balance in the account, the "negotiator" attempts a lump-sum settlement with your creditors for a fraction of the balance owed.
There is no agreement in place with your creditors prior to the settlement offer.

While a properly executed DMP can work in your favor, a debt settlement plan is almost always bad news.
They always result in severely damaged credit, with accounts reporting multiple lates and a charge off, followed by a negative "Settled for less than full balance" if successfully settled. And that's the best scenario.
Worse, you'll end up being sued by the creditors.

There is no shortage of scammers and thieves in the settlement business. Some so brazen as to just take your money and disappear, others who make promises they can't possibly deliver. New ones open up as quickly as the bad ones are shut down.. it's still the Wild West ..and with a severely overworked sheriff.
Our best advice, along with that of the reputable Consumer Credit Counselors and the FTC is: Stay away from all "debt settlement" services.

Not the smartest......
One of the larger Debt Settlement firms had the brilliant idea to send letters to your creditors, announcing that you'd signed up for their settlement services, intending for the creditors to stop calling you as an offer would be forthcoming.
Instead.... the creditors realized that you had an income, were managing to save some of it- and had the $$ for the settlement firm's fees. They filed lawsuits instead.
Which is the entire problem with debt settlement. Why would the creditors accept a fractional settlement when they can simply sue you and collect 100% plus expenses? A hardship is a hardship...but if you have the $$ for the settlement law firm you can probably pay a judgment too.

Always an exception:
The one circumstance where a settlement plan may work is when the accounts are already charged off, you aren't an attractive lawsuit target and the credit damage is already done. At this point you may find creditors perfectly willing to accept a settlement and close out the account.
At this point you don't need a negotiator or lawyer to settle for you though, you can do it yourself for the cost of a letter and stamp.

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