There are several different types of debt negotiation programs. While all of these programs operate by negotiating with creditors to reduce the amount of a consumer's debt, the processes by which they accomplish this differ widely. Some debt negotiation programs work with debtors that already have a significant amount of cash saved up, acting as a middleman in handling settlement negotiations with creditors. Others ask debtors to begin a savings program in order to build a fund to be used in negotiations. Finally, some debt negotiation programs operate more like traditional credit counseling or debt management programs in which a debtor pays most of his debt, but a credit counselor negotiates lower fees, payments, or interest rates on his behalf.
Many people would like to pay their debts, but may face high debt balances with high interest rates and either cannot afford their current payments or realize that it will take them years to pay off their accounts. For these debtors, settling their accounts for a percentage of what they owe may be the best and quickest way to eliminate their debt. A debt negotiation program, also known as a debt settlement firm, begins negotiations once their client has the cash with which to make an offer. If the client does not have enough cash saved in order to make reasonable offers to creditors, the debt negotiation company may open a separate bank account into which the debtor makes regular payments. When the balance gets large enough to begin the settlement process, the debt negotiator gets to work.
If cash settlements aren't going to work for a debtor, he may want to try a debt management program. In a debt management program, the firm or credit counselor contacts the debtor's creditors and attempts to negotiate lower interest rates or eliminate fees. Debt management programs can sometimes negotiate a reduction in a debt balance, but that isn't usually the goal of credit counseling or debt management. Instead, the debtor's financial obligations will typically be consolidated and he will make one payment to the debt management firm each month until his debts are settled.
Some financial experts believe that self-help is a better option than many debt negotiation programs. Since these programs can charge high fees and may encourage debtors to not pay their debts while saving money for a settlement, they may do more harm than good. Many creditors are receptive to working with debtors, particularly if a debtor is willing to pay off a significant percentage of their debt in the form of a cash settlement. Debtors may wish to contact creditors directly to negotiate a reduction in debts, payments, or fees before engaging the services of a professional.