Debt negotiation providers use their skills to bargain with the companies you owe. If you choose a top-rated debt negotiation service, you will benefit from their services. Debt negotiation enables you to pay back a portion of what you owe. Unlike debt consolidation, where you will pay back the total amount of what you owe, debt negotiation services reduce your debt. However, this industry is full of scammers and miseducation of consumers regarding debt negotiation. As such, you have to research thoroughly to avoid scammers and deal with programs that can help with credit card debt. Here is how debt negotiation services help reduce the debt you owe.
- How Debt Negotiation Works. Debt negotiation happens when you owe too much, and you have several late or skipped payments. If there is a reason that you cannot pay the total amount of what you originally owed, a debt negotiator can make your creditor understand this reason and accept less than you owe. You may have a shredded credit score, your income may not cover your debt obligations, and you may feel hopeless. Debt negotiation services negotiate with creditors to reduce the amount you owe, especially on unsecured debt such as credit cards. However, these services are not an option for debts such as houses that can be foreclosed on or cars that can be repossessed. Debt negotiations only work if you cannot pay at all. Instead of making partial payments, you will open a savings account to put a monthly payment. Once your debt negotiation company believes that you have a lump-sum offer, it will negotiate with your creditor to accept a smaller amount.
- Debt Negotiation and Bankruptcy. When debt negotiation works as intended, everyone involved in the process can benefit. You will get out of debt and save money, the debt negotiation company will earn money for their services, and the creditor will receive more than they would if you stopped paying altogether or filed chapter 7 bankruptcy. Chapter 7 bankruptcy involves liquidation your non-exempt assets and using the proceeds to pay back your creditors. Compared to debt negotiation, chapter 7 is a faster option. Chapter 7 will stop lawsuits and collection calls, plus it is a legal process. Debt negotiation does not have these benefits. However, debt negotiation can prevent you from declaring bankruptcy. Remember that bankruptcy remains on your credit report for ten years, while debt negotiation stays for seven years. After seven years, there is no public record of you ever having settles your debts.
- Repayment Time. With a top-rated debt negotiation service, you could repay your debts within four years. This is much less time compared to what you would take repaying your debts the usual way. Also, debt negotiation provides a shorter repayment period than chapter 13 bankruptcy and credit counseling, which can take up to five years to clear your debts. You may take decades to pay off debt if you stick to the original repayment schedule.
- Risks. Although debt settlement may offer an ideal way to clear your debts, consider the risks involved with these companies before signing up. Most of them may require you to deposit money in a savings account for about 36 months or more before they negotiate with your creditors. Most people may not make the payments long enough to get all or some of their debts settled. Some people even drop out of the programs. Review your budget and ensure you can make the monthly amounts for the entire length of the program. Also, remember that your creditors are not obliged to accept the negotiated settlement of the amount you owe. As such, consider the chances of the debt negotiation company failing to clear some of your debts.
- Other Options. Using debt negotiation services is one option for dealing with your debts. However, you can also try other alternatives such as negotiating directly with your credit card company, working with a credit counselor, or even consider bankruptcy. Instead of paying a company to talk to your creditor on your behalf, you can do it yourself for free. Find the phone number on the statement and be persistent but polite. Have a good record of your debts so that you can explain your situation effectively. Work out a modified payment plan and ensure you set a payment level that you can afford.
Debt negotiation services can be an ideal and inexpensive way to clear your debts. However, consider the amount you owe, how long the process may take, and the stress you might face compared to other options.
You may also like: 5 emotional benefits to becoming debt-free
Image source: Shutterstock.com