What you need to know about debt settlement firms:

Your credit card companies are not going to offer you settlements like 50%, for example, if you are current (not behind) on your payments. If credit card companies offered settlements to people who are current on their payments, then everyone would be calling them up and asking for 50% settlements. Basically, the only way you can get into a position to negotiate settlements is to deliberately let your accounts go into default. This is exactly what debt settlement firms do....They take a monthly amount from you and use that to build a “settlement” account, which will go towards paying the “settlement” at a certain date. Your creditors will deliberately not be paid and they will not be happy about this.

• If you are current on your accounts, this process will ruin your credit rating as your accounts will all go into default.
• Your creditors are under no obligation whatsoever to accept settlements from any debt settlement firm you hire. Their response might be to serve you papers and take you to court.

Debt settlement "can" be a viable alternative to filing for BK....you just need to be aware that if you currently have good credit...the debt settlement firms will deliberately let all your accounts charge-off/default to put them into a position to negotiate settlements. It can be a stressful and unpredictable process....As your accounts all go into default...you will get increasingly aggressive collection calls from debt collectors. It is "typical" that creditors offer settlements for defaulted credit card debt....They often do this in lieu of loosing everything if you file for BK.....

HOWEVER, you can never predict how any one creditor will respond to defaulted debt. They might decide to take you to court and get a judgment against you. Debt settlement firms have no power whatsoever to stop creditors from taking this action and they have no power to force creditors to accept settlements.

****If you have already defaulted on your cards....make your own settlement offers...you can do this on your own and it puts you in control. If you do...get all settlement terms IN WRITING PRIOR to paying them.

If you are NOT in default on your credit cards, the debt settlement process will ruin your credit and there’s no guarantee that your creditors will accept settlements. It can be an unpredictable and risky process.

Validate Debt Trick

Accurate negative information stays on your credit file and can remain for up to seven years. There is, however, one trick that "may" help to remove negatives from your credit files...this involves requesting written validation of each negative item on your credit file, which is your right under the federal Fair Credit Reporting Act. You don't have to pay anyone to do this.

Per the Fair Credit Reporting Act you have the right to request written validation of negative entries on your credit files. Per this law they must validate the item(s) within 30 days or remove them from your credit file. Mail a letter via certified mail with return receipt to all three credit bureaus (Equifax, TransUnion & Experian). Include a photocopy of your driver's license and social security card...If you don't include these, they may write back requesting them, which would slow the process down by several weeks. For each negative item, write a separate letter and simply include the phrase:

Per the Fair Credit Reporting Act, I am requesting written validation of this item.

Do this one at a time for each negative entry....DO NOT request validation for all items at one time.

There is NO guarantee that this will work....It may give some decent results. The worst that can happen is that all negative items come back verified.

Cleaning Up Credit

You first want to start with the newest items first, as they most heavily impact your credit rating. Anything less than two years old should get top priority.

Start with non-revolving items like defaulted cell phone or health club bills, as you can negotiate the complete removal on these non-revolving items from your credit files. You can get written Pay for Delete agreements when they agree to delete the item from your credit report upon receipt of the agreed-to amount. Get all terms in writing FIRST prior to paying them....DO NOT accept verbal promises from debt collectors regarding settlements. Once they get your money they will continue collection activity and deny that any settlement agreement was ever made. Without a written agreement you would not be able to challenge them.

Defaulted/charged-off credit cards are another matter. These can stay on your credit report for up to seven years.....paid or unpaid. Paying off charged-off debt will not magically repair your credit rating....If the debt is over two years old, there's not much point in bothering. Even if you negotiate with the debt collector for the removal from your credit report, the original credit card company will continue to report the charge-off on your credit report.