Debt negotiation is the process in which your lender “negotiated down” your debt with a total or partial repayment. It could also be extended to situations in which all the debt outstanding (all accounts) is settled, but it is only possible after the account is successfully negotiated down.
If a negotiated settlement has been reached, you would be required to pay back a percentage of what is owed, generally less than the balance. Based on the nature of debt and your financial circumstances, it may also be feasible to make no monthly payment or any repayment on account until it has been fully settled.
What is the process of debt negotiation?
Every lender has a different process for negotiating down consumer debt. In most cases, you’ll have to contact the lender by telephone and discuss the matter when they are aware of your financial situation. You could be asked for written documentation to support your claim that you are unable pay the debt.
Once you’ve explained your situation to the lender, they may offer to negotiate some sort of repayment plan that is lower than the amount owed. Take note that you’ll need to make payments towards the debt until it is fully paid, even if a negotiated settlement is reached.
In some circumstances an expert in debt negotiation may have to contact your creditors directly on your behalf. This is only necessary in cases where you’re not allowed to talk to the customer service rep via phone, for example.
If your debt is reduced to a percentage of the amount due you’ll have 36 to 48 months to repay it. There is a possibility to pay all your debts in a shorter time frame depending on the particular case.
What kinds of debts are able to be resolved?
The majority of consumer debt can be negotiated with a lender. A majority of the types of debts that are paid back over time, such as personal loans credit card debt, student loans, and lines of credit, can be negotiated by the appropriate person at the lender’s office.
A separate issue are business debts. If you’re in a contract with a company or business owner to whom you are subcontracting services, the odds of negotiating a deal with them are slim to none.
It is vital to be aware that some lenders may not be willing to discuss a repayment plan for your debt, particularly when you’ve missed a few payments or if the account is being held in collections.
For more information, click debt agreement vs bankruptcy
What are the advantages of debt negotiation?
Debt negotiation has many benefits. Depending on the lender you choose, you may be able to get the entire balance of your debt cancelled or only a portion of the total owed repaid. This could offer some cash flow relief until the payment plan is finished.
Debt negotiation may provide for an extended time frame during where no monthly payments are needed. This is a great option if you cannot make the larger monthly payments and you require more time to get your finances in order.
If you’re facing bankruptcy or wage garnishment In some cases, debt negotiation is the only option.
It is essential to understand that debt negotiation will affect your credit score, if not in the short term because it is listed as a kind of default. The lender could sell your debt to collection agencies or refer you for legal action if the agreement cannot be reached.