October 5th, 2009 by Reed Allmand 
Creditors “charge off” the debt they forgive and report it to the credit bureaus as unpaid debt–which stays on your credit for 7 years.
America is in debt–there’s just no way to deny it–and sinking farther into debt every day. A huge chunk of the nation’s fiscal problems is due to escalating consumer credit card debt, and as the economy worsens that debt just keeps on piling up. And as the government digs itself deeper into debt trying to dig everyone else out of it, it’s easy for overwhelmed consumers to grasp at straws in an attempt to keep from drowning. In this case, trying to negotiate with credit card companies so they’ll settle for a lower amount of money.
According to an ABC News article, though, that may not always be the best strategy. In the article, Todd Mark , vice president of education for the Consumer Credit Counseling Service of Greater Dallas, believes that debt settlement is a step that should only be taken in certain situations.
“Would a debt negotiation/settlement or even a bankruptcy filing truly position them to survive any financial crisis, and live within their means and accomplish financial goals going forward? Or would it only temporarily ease the burden, while masking any underlying behaviors and enabling the chance to immediately start a new debt cycle?”
He points out that even negotiating with creditors to pay a lower amount than actually owed, it will still have an immediate negative impact on your credit rating. Creditors “charge off” the amount of debt they forgive and that amount is reported to the credit bureaus as an unpaid debt. “That will stain a credit report for seven years,” Mark explains.
Some people consider turning to a third-party debt negotiation company to try and resolve the issue, but these companies typically charge high fees or a chunk of the amount they convince your creditors to forgive. Money you could be using to help pay off your debt.
“Bad actors in the industry will collect fees up front, while paying nothing for months, destroying the client’s credit under the guise of building leverage for the negotiation,” he warns.
Oftentimes, bankruptcy can actually be a better course to steer. While a bankruptcy will remain on your credit report for ten years, so will any debt that creditors “charge off”. Bankruptcy can also provide the fresh financial start you need to get things back under control with all your finances, whereas getting the credit card company to charge off your debt leaves all the other bills piling up outside your door.
About Reed Allmand
Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."
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