• Bankruptcy is a form of debt settlement. Through bankruptcy proceedings a judge can authorize the complete or partial elimination of all of your unsecured debt. Under current bankruptcy law it is possible that the judge will not forgive your debts but set up a repayment plan based on your current situation. Your bankruptcy is not discharged until the payment plan is completed (normally 3-5 years) and the Discharge stays on your credit report for ten additional years. Under current law a bankruptcy can hang over your head for up to fifteen years.


• Consumer Credit Counselors is a non-profit organization supported by credit card companies that is designed to create a repayment plan to the creditors over 2-5 years. When you make a deal with CCC all of your credit accounts are closed. You still repay interest and principal and your credit report is hit negatively for the entire repayment term plus 7 years.


• Debt Settlement is a long process whereby the borrower does not pay the lenders and sets aside a monthly payment that will be used to settle the debt once it has been sold to a collection agency. Normally debts can be settled for as little as 50% of the original loan. In the settlement with the collection agency it is negotiated that they will remove any negative trade lines from the credit bureaus concerning the account. Settlement time is 2-4 years, payment is usually half of the amount originally borrowed and you pay no interest during the repayment period. Credit is normally repaired at the time of settlement but can be damaged severely for as much as seven years.


• Debt Negotiation is the ability to negotiate lower interest rates and better terms with a lender. In some cases the lender will lower the interest rate to as little as 0% and charge no late or over limit charges. The account is normally closed which will have a short term impact on your credit rating due to a drop in available credit. At the end of the repayment period your credit will be restored as the accounts are shown "paid as agreed". This method allows you to pick and choose a plan that can work specifically for you as the other plans will impact all lenders equally.

• ALL agreements by lenders or collection agencies MUST be in writing before you send payment.

• You can only settle unsecured debts. If you try to renegotiate your car loan or any other collateralized loan the lender will repossess the collateral.

• Never give a collection agency your banking information or a credit card number to make a payment. They will try to get this info from you which will allow them the ability to take future payments. Possibly without your permission.

• Under the new FICO rules small collection accounts under $100 are ignored so if you have any of these accounts showing on your bureaus they can be ignored.

Debt Negotiation is really no different than a loan modification.  However, to negotiate most debts with credit card companies or collection agencies you will not have to provide the massive documentation required for a home loan.  Debt Negotiation should be used when you want the least negative impact on your credit score for the shortest period of time.

At this point we must mention Consumer Credit Counselors (CCC) as they are in the business of debt negotiation.  They work for the credit card companies and receive a fee of 12% of each of the debts settled from the original lenders.  This means they work for the people you are trying to negotiate a deal with.  It's kind of like a car salesman telling you they are on your side in the negotiation with the dealer.  Until you know who is being paid by whom you never know whose side anybody is really on.  CCC is the second worst mark you can get on your credit report.  The only mark worse is a bankruptcy.  CCC will force you to close all of your accounts and put all of them on the repayment plan.  This will have a negative impact on your credit report, that can't be removed through Credit Restoration and will stay with you for at least 11 years.

Debt Negotiation is for those people that wish to repay the liabilities they have incurred just at better terms than the original agreement. 

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