Debt negotiation refers to a process where your debt is “negotiated down” by the lender, through either partial or complete payment of the debt. It can also be extended to situations where the debt outstanding (all accounts) are paid off, however it is only possible after the account has been successfully negotiated down.
A settlement that is negotiated will need you to pay back part of the debt, usually less than the original balance. In the case of a particular debt and your financial circumstances, it may also be possible to not have installments or payments whatsoever until the debt has been paid in full.
What is the process of debt negotiation?
Each lender will have an individual method of negotiating down the amount of consumer debt. Most of the time, you’ll need to contact the lender by phone and negotiate with them after they’ve analyzed the financial circumstances. It is possible to request proof in writing that supports your claim that you’re not able to repay the debt.
Once the lender understands your specific circumstances, they might be willing to work with you to come up with an arrangement for repayment that is less than the total amount owed. Be aware that you’ll still be required to make a few payments towards the debt until it is completely paid back regardless of whether a settlement can be reached.
In certain circumstances the debt negotiator might need to reach out to the creditors directly on your behalf. If you’re not allowed to contact customer service representatives on the phone in this case, it would be required.
If your debt is reduced to a fraction of the balance that was due, you will have 36 to 48 months to repay it. There is a possibility to pay all your debts in shorter amounts of time depending on the situation.
What kind of debts can be settled?
A majority of consumer debt can be resolved with a lender. You can negotiate most types of debt that are settled over time by contacting your lender’s contact. These include student loans along with credit card debts and personal loans.
A separate issue are business debts. There are very little chances of receiving a loan from a business or a company owner to whom you subcontract services.
Remember that lenders might not provide any repayment plans for your debts if you’ve been late on your payments or you are in collection.
For more information, click debt agreement vs bankruptcy
What are the advantages of the process of negotiating debt?
There are many benefits of debt negotiation. Depending on the lender, you could be able to get your entire debt be wiped out or have only an amount of debt owed paid. This might provide some cash flow relief until your repayment plan is complete.
You may be able extend the time without the need to make each month’s debt payment. This is an excellent option if you can’t make monthly payments or want to spend more time trying to organize your finances.
In certain situations the debt negotiation process may be the only solution if you’re in the process of filing for bankruptcy or wage garnishment.
It is essential to understand that debt negotiation may adversely affect your credit score, at the very least in the short-term, since it will be reported as a form of default. The lender may offer to sell the debt to collection agencies, or refer you for legal action in the event that the agreement cannot be reached.