Debt negotiation can be done by lawyers as well as non-lawyers. This procedure forces you to become past due on your accounts and then arranging for the creditor to take less than the full amount due in a lump-sum payment. Monthly payments will be sent to your negotiator’s office and they will hold onto the money until a settlement can be reached.

The problem with this approach is that nobody can guarantee that a certain debt can negotiated, and if so, for how much. As part of this procedure, your credit rating is sure to suffer because you will be forced to be past due on every single account. And there’s no guarantee that a creditor won’t sue you before a negotiated settlement can be arranged.

Once the debt is negotiated and paid, your credit report will say "Negotiated/Paid" and not the more favorable "Paid in Full."

Finally, and most importantly, debt negotiation affects how much you pay in taxes. If you owe $5,000 on a credit card and the amount is reduced to $2,500, the savings of $2,500 is considered taxable income to you and must be reported on your tax return. This means that you’ll have to pay taxes on the $2,500 savings, which is not really much of a savings at all.