Debt negotiation is the process in which the debt is “negotiated down” by the lender through either partial or complete payment of the debt. It can also be extended to situations in which all the debt outstanding (all accounts) are settled, although this will only happen once the account is successfully settled.
A settlement that has been negotiated would need you to pay back a portion of the debt, generally less than the original balance. It may be possible to stop paying any payment or installments on a monthly basis until the account has been settled. This is contingent on your financial situation.
How do debt negotiation works?
For consumer debt every lender has an individual procedure to negotiate down the amount of their account(s). Most of the time, you’ll need to contact the lender by phone and negotiate with them when they are aware of the financial circumstances. You may be asked for proof in writing that supports your claim that you are unable repay the debt.
Once the lender is aware of your specific situation, they may be willing to collaborate with you on an arrangement for repayment that is less than the total amount owed. Remember that you will still likely be required to make a few payments to the debt until it’s fully repaid even if a settlement is reached.
Sometimes, a debt negotiation expert might have to contact creditors on your behalf. If you’re not able to speak with customer service representatives over the phone it is possible to do so.
If your debt was negotiated down to a percentage of the amount due, you would then normally have 36 or 48 months to repay. You may be able to pay all your debts in less time depending on the particular case.
What types of debts could be resolved?
A majority of consumer debt can be dealt with by the lender. You can negotiate the majority of debt that are to be paid in installments with your lender’s contact. This includes student loans or credit card debt as well as personal loans.
Businesses have a different story entirely. If you’re having a loan with a company or an owner of a business that you are subcontracting services, the odds of negotiating a deal with them are very slim.
Be aware that lenders may not offer the option of a repayment plan for your debt if you have missed some payments or are in collection.
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What are the benefits of credit negotiation?
Debt negotiation offers many advantages. It is possible to forgive the entire balance of your debt or just a small portion depending on the lender you choose to work with. This could be a relief in cash flow until you’ve finished your repayment plan.
Debt negotiation could also allow for an extended time frame during where no monthly payments are needed. This is beneficial if you are unable to make larger monthly payments and you require longer time to get your finances back in order.
In some cases, debt negotiation may be your only option when you’re facing bankruptcy or wage garnishment.
It is important to note that negotiating debts can negatively affect your credit score in the short-term is essential as it can be considered the result of a default. In the event of a lender default, your debt may also be sold to collection agencies or even referred to legal proceedings if you are unable to pay your debts after an agreement has been reached.