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Be wary of debt negotiation programs in Long Island

For the many individuals in Long Island struggling under a mountain of debt, searching for a way out can seem impossible. In situations like these, debt negotiation programs, also known as debt settlement companies, may seem like the way out of one's problems. However, DNPs often do more harm than good.

DNPs advertise that they can cut an individual's original amount of debt by negotiating with the individual's creditors. However, fees for a DNP can be very expensive, and may even end with a final bill that is calculated based upon a certain percent of what the company allegedly saved the debtor.

DNPs will say that utilizing their services will not damage the debtor's credit score. However, most of the time a creditor will not settle an outstanding balance until the debtor's payments are a few months overdue. Moreover, these settlements may come with negative consequences that could harm a debtor's credit, such as late charges, delinquency notices, and higher interest rates. In fact, missing monthly payments on a debt could even cause an individual to be sued, have his or her wages garnished, or have a lien put on his or her property, all of which could be reported to a credit reporting agency, damaging one's credit score. And even if the DNP does save an individual some money, the Internal Revenue Service may deem those savings as taxable income.

Therefore, debtors should be wary about using a DNP, unless they understand exactly what the consequences of using such services will be. If a DNP guarantees it can settle all of a debtor's unsecured debt for a small fraction of the total outstanding balance, this could be a red flag that the DNP should be avoided. In addition, if a DNP claims it can help debtors avoid bankruptcy, or if it claims that the debtor's credit score will not be harmed or even that it can erase negative information from one's credit report, these are also red flags to look out for. Finally, be wary of DNPs that ask you to stop making monthly payments on your debts or end all communications with your creditors.

In the end, while DNPs may be tempting to those in a desperate situation, they are not always the answer. There are other debt relief options out there, including filing for bankruptcy, which can help a debtor regain control of their financial future.

Source: FindLaw, "Debt Negotiation Programs," accessed June 27, 2016

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