Debt Negotiation is a service that more and more people are leaning toward who've had a hardship or serious debt problems.

This service is meant for people who have large outstanding debts on which they haven't paid in the past 3 months. The main benefit of this service is that clients usually only pay around 50% of the amount they owe to their creditors. There are some downsides to debt negotiation, which will be explained below.

Here's a breakdown of how a program like this works:

Once you sign up, you stop making payments to your creditors completely. During the program your creditors don't get a cent until they agree to help you with your hardship and cut the amount you owe down significantly.

The debt negotiation company then either takes monthly payments from you which it stores up in a holding account, or it has you store up the money in your own account. During this process of accumulation, the debt negotiation company is handling your creditor calls and negotiating with your creditors for a lower payoff amount, typically around the 20-30% range.

Once a settlement is reached with your creditors, a lump sum payment is made to them. Most companies also require the creditor mark the credit report as "paid in full" so it doesn't show up negative on your report once it is settled.

Although this sounds too good to be true, there are some downsides to debt negotiation. First, you will have bad credit while you're in the program. Second, the debt negotiation company isn't successful in the negotiation process, then you are stuck with bad credit and may want to seek credit restoration.

To offset the bad credit problem, there are some settlement companies who include a credit repair service (which you pay for, of course), which will remove the negative items that were caused by the program. And, since all your debts will be paid off by program completion, no new negative items will appear.

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