Debt Settlement

Using Negotiations For Debt Relief

If you are falling behind on your bills, debt settlement could provide an alternative to bankruptcy.

What is it?

Debt settlement is also known as debt negotiation. Debt negotiation, can be used to help get relief from credit card debt or other unsecured loans.

When a person is unable to meet financial obligations and is continually falling farther behind on payments, creditors would rather agree to a settling a bill owed than have the debtor file bankruptcy, and receive no money at all.

In a negotiated agreement, creditors agree to accept a payment that is less than the full balance but consider the loan paid in full. In many cases, outstanding debt can be reduced by 40-60%.

If a person is behind in paying their debts, they may even receive mail or a phone call from creditors offering a pay off amount considerably lower than the balance owing if they pay the offered payoff in full according to their terms (usually a specified period of time, anywhere from a few days to a few weeks. Some creditors may even offer payments over a 2, 3 or 4 month period).

Negotiating Debt Payoff

You can contact creditors yourself and discuss a settlement agreement, or hire pros to help you. If you can get money that can be used to make the debt payoff, you can save a lot over paying the full amount. You will save not only the interest portion of the debt but also on the principal owed.

Creditors will often agree to a larger reduction on the outstanding balance in exchange for an immediate payoff. You may also be able to arrange to pay a decreased principal over a slightly extended period of time, and negotiate for such things as lower interest rates or the elimination of late fees.

Even though you have reached an agreement, there are a few creditors who will still report the negotiated settlement to credit bureaus. Even with that to consider, depending on your situation, debt settlement may be the best decision you can make. As a debt relief option it will have less impact on your credit rating than a bankruptcy.

Before deciding if settlement is the right choice for you, you should review your financial situation and determine if you are in a position to negotiate an agreement. Do you have access to money or the ability to borrow? Consider tax refunds, borrowing from family, taking a mortgage (refinancing, 2nd mortgage, or home equity may work), etc.. So think of the various ways you can access ready cash to help reduce your debt load.

If you choose to make payments, what can you afford to pay each month? Before approaching creditors, you must have an idea of where you stand financially and what agreements you are able to make.

Settling Debts

It is usually recommended that you settle the debts with the highest interest rates first, as this will make the biggest improvement in your immediate financial situation.

Also, to protect your credit rating as much as possible, delinquent accounts should also be a priority.

Professional Services

Professional Debt Negotiator Services or Debt Settlement Companies can set up payment plans and work with your creditors to settle a debt. They have the experience and resources to help you receive the best settlement possible. And since they work with creditors all the time, they often know how much of a reduction each will accept, therefore getting you the maximum benefit.

Professional Debt Settlement Companies also offer services similar to Debt Consolidation Companies. You would make regular negotiated deposits to the company or agency, and once you reach the minimum balance needed to settle one debt, a debt settlement consultant would deal with the creditor to arrange a full payment.

Debt Consolidation Companies or Credit Counseling Debt Relief Services generally propose a five year repayment plan. Professional debt settlement can reduce this time to almost half (depending on the total amount you owe and what you have available for repayments), so you will be debt free sooner.

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