Debt Negotiation, commonly referred to as Debt Settlement or Debt Elimination, is a service that more and more people are leaning toward as they fall deeper and deeper into debt. Debt Negotiation is considered a specialty service, or a hardship service, which is mostly offered to people who "fall out" of a debt consolidation program, can't make the minimum payment of a debt consolidation program, or have large outstanding debts on which they haven't paid in the past 3 months. The main benefit of a debt negotation 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 how Debt Negotiation typically works. Once you sign up for a debt negotation program you stop making payments to your creditors (if you were making payments). No payments are made to your creditors during your participation in the program. 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 accout. During this process of accumulation, the debt negotation company is handling your creditor calls and negotiating with your creditors for a lower payoff amount, typically around the 40-50% range.

Once a settlement is reached with your creditors, a lump sum payment is made to them. Most debt negotiation 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, your credit will be awful while you're in the program. Second, if the creditor never agrees to settle (which is very rare) then you end up with bad credit, and in worse shape than where you were before.

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 which 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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