Most debt negotiation agencies are scams

You've probably seen lots of tempting ads on TV (or heard them on radio) that promise to erase your debt for pennies on the dollar. Before getting involved with any debt negotiation agency, be sure to research the firm with your state Attorney General and your state's consumer office.

One reader recently asked:

There has been an increase in advertisements for debt negotiation agencies that are different from debt consolidation. They state that they can negotiate your debts down rather than consolidate. I already checked with a reputable consolidation agency and the consolidated monthly payment is more than my combined monthly minimum payments which I cannot afford. Are these debt negotiation agencies a viable alternative or a sham?

My vote would be that a debt negotiation agency is more likely a scam, but there may be some good ones out there. The FTC has closed down many of them because instead of helping consumers pay off their bills, they've driven them to bankruptcy. Often the FTC works with the state attorney general in bringing these cases. Here's how most of the scams work: