Debt negotiation is a process where your debt is “negotiated down” by the lender, by either a partial or total repayment of the debt. It can also be extended to situations where all of the outstanding debt (all accounts) are settled, although this will only happen once the account has been successfully reduced in value.
A negotiated settlement would be requiring you to repay a portion of the debt, typically smaller than the original balance. It may be possible to stop paying any regular payments or repayments until the balance is settled. It depends on your financial situation.
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What is the process of debt negotiation?
For consumer debt, each lender has an individual procedure to negotiate to reduce the amount of their account(s). The typical procedure is to contact the lender via telephone to discuss your financial position. You could be asked for documents in writing to support your claim that you’re in a position to repay the loan.
After you’ve explained the situation to the lender, they might be willing to work together on a repayment plan that is less than the amount that is owed. Even if you reach an agreement to settle, you’ll have to pay the obligation.
In certain situations, a debt negotiator may be required to call the creditors directly on behalf of you. If you’re not allowed to speak with customer service representatives via phone in this case, it would be required.
If your debt is diminished to a certain percentage of the original balance due you’ll have between 36 and 48 months to pay it back. There is a possibility to pay all your debts in a shorter time frame depending on the particular case.
What kind of debts can be settled?
Most consumer debts can be negotiated with a lender. You can negotiate the majority of debts that can be to be paid in installments with the contact details of your lender. These include student loans along with credit card debts and personal loans.
Another matter entirely are business debts. If you have a loan with a company or the owner of a business to whom you subcontract services, the chances of renegotiating that debt are not very likely.
Remember that lenders might not provide an option to repay the debt you owe if fallen behind on payments or are in collections.
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What are the advantages of the process of debt negotiation?
There are many advantages to debt negotiation. Based on the lender, you might be able to have the entire balance of your debt be wiped out or have only a percentage of the total due amount repaid. This may provide some relief in cash flow until you’ve finished the repayment plan.
It is possible to negotiate a longer period of duration without having to make each month’s debt payment. This is beneficial in the event that you aren’t able to make bigger monthly payments and require more time to get your finances back in order.
If you’re facing bankruptcy or wage garnishment in some instances, debt negotiation might be the only alternative.
It is important to note that debt negotiation could negatively impact your credit score, at the very least in the short-term, since it will be considered a form of default. Your lender may sell the debt to collection agencies, or even refer you to legal action if an agreement cannot be reached.