This article will give you a background of what people know as debt negotiation. Debt negotiation is when counselors "negotiate" on your behalf to lower your interest rates. Some debt negotiation programs are legitimate and do work, but others are simply scams. Find out if the people who run the debt negotiation program are part of a consumer credit counseling service or non-profit debt consolidation company. If they are not, then you should find something suspicious about that. You can get free debt consolidation help from credit counselors who can explain the difference between debt negotiation and a consumer credit counseling service.

Debt negotiation is also known as debt "arbitration" or "settlement". It is sometimes confused with debt consolidation but hopefully in this article the differences can be made clear. There is a far greater opportunity of damaging your credit using a debt negotiation program.

Debt negotiation should be viewed and considered as a last-resort measure. It is only a half step before bankruptcy. A lender has little motivation to arbitrate for a pay off less than the full amount unless the debtor is already 2-3 months behind on bills. This is exactly what negotiation is and which obviously means complete destruction of a credit history. Additionally, the debtor is dealing with debt owed to a lender who loaned money or property in good faith. The lender has the right to full payment if at all possible. Morally it is the correct thing to do.

But sometimes circumstances do occur that negotiation may be the only course of action remaining, or at least the most logical solution. As an example, perhaps an old forgotten debt exists as the only blemish on a report. Debt negotiation may be the proper course. But under normal circumstances of just too much debt, credit counseling should be the standard first attempt to reduce payments. Contacting creditors on your own, negotiating payment arrangements or asking for a lower interest rate are also potential options. Perhaps even skipping a payment can turn the tide but it all must be coordinated with the lender.

Another option is to use a debt consolidation company. But be careful. Debt consolidation should be used when debts are mostly current. Settlement or arbitration is for use when debt is VERY delinquent. Similarly, consolidation should never be considered if the objective is simply to reduce monthly payments in order to afford more credit.

Finding Out About Debt Negotiation

To give you an example of debt negotiation scams we have included the following information from an FTC press release stating the government is cracking down on such scams.

Fraudulent telemarketers constantly prey on consumers seeking personal credit or finance-related assistance, according to the Federal Trade Commission and 15 state and federal law enforcers, who today announced "Operation No-Credit" - a joint law enforcement campaign targeting a wide range of credit-related frauds. The FTC and other law enforcement entities filed 43 actions as part of this campaign. Operation No-Credit highlights the efforts of the FTC and other law enforcement entities to halt some of the financial frauds occurring throughout the nation. The cases in this telemarketing sweep encompass a variety of financial frauds that impact consumers' credit, including typical advance fee credit card, credit repair, pay day loan, debt adjustment, and debt negotiation schemes, as well as new credit identity scams. The FTC has filed a series of federal court complaints alleging violations of law in the following areas:

Seven separate enterprises offer consumers "major credit cards," such as a MasterCard or Visa, or a loan, for a one-time advance fee, that never produce the promised credit cards or loans.

A California firm calling itself a "debt negotiation" company promises financially strapped consumers that it could reduce their debt and restore their credit by negotiating with creditors. But the company does little other than charge exorbitant fees while consumers stop making required payments to their creditors and plunge deeper and deeper into financial ruin.

An Oregon firm calling itself a "financial finder and matching service," offers to match consumers to charitable foundations that are most likely to give cash grants - which, unlike loans, never need to be repaid - to individuals who have "genuine reasons for needing the money," regardless of credit history or collateral. But what consumers receive is a useless list of foundations and general instructions on applying for a grant.

"In these uncertain economic times, finance-related scams are especially outrageous because they prey on the most vulnerable consumers - those out of work, those with poor credit ratings, or those who need money right away for emergencies," said J. Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "Working with our federal, state, and local partners, we are stopping scam artists who make false promises with no intention of delivering the goods. Our warning to these disreputable businesses is: we will track you down and stop your illegal practices.

A credit counselor can give you free expert advice on how to get debt relief and get out of debt with a free debt consolidation analysis.

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