The TRUTH about debt negotiation


(I've been looking into) companies who offered ...debt elimination &/or credit solutions - whereby they said that they can cut/reduce my total debts to 40 cents to a dollar because they can NEGOTIATE with the credit card companies and ask for the reduction of the debts to 40 cents to a dollar?

Then they will make a payment plan to spread my reduced total payment to 2
or 3 yrs. by asking me to open a bank account where I will deposit the
agreed monthly payments, and where the monthly payments will be taken out
to pay the different credit card creditors, and their fee is 15% of the
total debt which they will be paid in installments and become fully paid
during the first 6 months of the 2 or 3 yr payment plan.

But they want me to go into default first for 3 or 4 months before they are
able to NEGOTIATE with the different credit card companies.
What do you think of these offers by these companies?

The reduction of my debt by 60% is so enticing.
What do you think? Please enlighten me.




I can answer this very quickly.

Stay away from these companies.

They wreck your credit AND if the creditors who agree to accept 40% on the dollar, inform the IRS, then you will get a tax bill.


You owe $10,000.

The company gets you a settlement of $4000.

Credit card company tells IRS you received $6000 in unearned income.

In the 30% tax bracket? You get a bill for $1800 (30% x $6000) at least.

So that's the $4000 settlement +$1800 in tax + their fee for the negotiation $1500 + your credit is ruined.

Notice how this company gets their fee within 6 months, so when this all blows up they can walk away unscathed. You are left with new debt, old debt and a credit report that's a mess.

Oh, and during the time you are in default you'll be getting calls and letters from your creditors...a LOT of calls and letters. If you send one of those letters to your creditors telling them to stop it, as you are entitled to do, you may be sued in court.

I hope people reading this who went down this road or know someone who did, will let us all know how it went.

So my very short answer is "Not worth it", Rosalind.

Hope this helps.

Best wishes,



  • Annette says:

    How do you talk to a credit card company to lower your interest rate?
    I have two visa cards one at 14.99% and the other at 23.99 % I have always been on time and have paid over the minimum by several hundred but also at the minimum amount too. I don’t understand why they would raise it. Do they do that just to see if you’ll say anything?
    Credit line on one is 16,000 and the other 21,000. Total charges on less is 2,800. and the other 6,000. They are visa.

    [Annette: This is a tricky area these days because I’ve heard reports of people calling to ask that their rate be lowered and their “reward” was they got their account closed instead. Why? Who knows. It doesn’t look like you’d have something similar happen to you because you have quite a bit of your credit line still available but we don’t know. If you don’t care if they close your account then by all means call up and be pleasant and say… “I see that I can get an interest rate of (whatever) from (a competitor) and I was wondering if you could match that rate?”. Good luck! Leo]

  • Colleen says:

    I am 1 house payment behind but can’t catch up because the interest they add amounts to almost a house payment. They will help me reduce my payment as soon as I catch up. It is a circle I can’t get around. Please help. Thanks, Colleen

    [Colleen- Sorry to hear of your situation. Find some nearby help from

    The specific page on that site is:

    Best wishes,

    Leo ]

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