According to Jeena, the best candidates for debt negotiation are those individuals with few creditors and the cash available to make a lump sum settlement. But consider — debt that is forgiven may be considered taxable income. Consider also that if you hire an attorney to negotiate at an hourly rate, there is no guarantee that they will be successful. It’s a little like gambling. You need to know how long to keep paying attorney fees in the hope of reducing your debt. You may also turn to a debt consolidation company. I’m sure you’ve heard their advertisements. If the company is not paid by an hourly rate, its fee is based on a percentage of debt reduced. You should avoid any company that requires an upfront fee which is typical of the prevailing scams.

One issue that comes up in negotiating debt is the effect it will have on your credit rating. To answer this question, I spoke to a number of mortgage brokers. I was discouraged as not only did several not answer the question, but more than one mortgage broker suggested that you refinance and roll up credit card debt as part of a new mortgage(s). IF YOU GET NOTHING ELSE FROM THIS EZINE, PLEASE DO NOT CONVERT UNSECURED CREDIT CARD DEBT TO DEBT SECURED BY YOUR HOME. The mortgage broker who did answer my question explained that the credit score was determined by multiple factors and that it wasn’t really possible to predict the long-term effect without a lot more information.

• Debt Consolidation/Debt Management Plans –  If you have too much debt, or you are unable to make a lump sum repayment, you can have a credit counseling agency enroll you in a debt management plan. Depending upon the creditor, interest rates may be lowered, and fees may be waived. Here’s how it works: the credit counseling agency receives payment from you and makes payments to the creditor based upon the payment plans they have negotiated with your creditors. Again, be careful which agency you choose. Look for certified counselors, with government agency endorsements from the Department of Housing and Urban Development (HUD) or the California Department of Consumer Affairs, as well as membership in national credit counseling associations. You should pay no more than $35 – $100 per month for this service, depending upon the number of creditors.

And what about your credit rating when you choose debt management? Once again, there are no definite answers. It depends upon how the creditors note the reduced payment. Some creditors will note the consolidated payment as “late” or “payments administered by a credit counseling agency,” which will negatively impact your credit report, or as “current” because they re-aged your account which will impact your report positively. If you’ve missed payments in the past or have been late in making payments, the overall impact on your report might be positive.

• Debt Elimination – One increasingly popular way to handle debt is to declare bankruptcy. It’s a complex issue and will be discussed in the next ezine(s) along with credit repair.

As a final note, I can report that many of my recent clients have had the resources or potential income to establish a successful debt reduction plan or consolidation. Even if you are in this enviable position, I would be concerned if in your eagerness to rid yourself of debt, you don’t leave yourself with an adequate emergency fund or enough cash on hand, or that you rob your retirement funds. Bottom line — even if you do have a debt reduction plan, it should be viewed in relation to your total financial plan, which is why you should include a financial planner in your debt management team.

Both Jeena Cho and I are available for complimentary consultations to determine if we can be of assistance. One fact concerning this difficult issue is that the sooner you act the better, so do get in touch as soon as possible.