Those in debt know that the bills begin to pile up. Credit card bills, other loans, medical bills, and school expenses all build on one another and drive you further down into debt. So what can be done to free yourself from all these things strangling your finances? Debt consolidation options like consolidation companies and debt management programs are available to help free you from your financial burdens. However, if you review those options and they still don’t seem right to you, then you may want to try a form of debt negotiation known as debt settlement. You can use negotiation services to your advantage to lower or completely remove your outstanding balance and free yourself from debt. Here is everything you need to know about debt negotiation.
What is Debt Negotiation?
The purpose of debt settlement is to go into negotiations with your creditors or collection agencies with the purpose of reducing the total amount of debt you owe. You want to try and get the lenders to agree on going down on the amount you owe, and sometimes you can even work out an agreement to erase the debt completely. Personal loans, medical bills, store cards, and unsecured credit cards are all areas in which debt settlement is possible. Student loans that were not issued by the federal government are also up for potential debt negotiation. By getting the creditors to lower the amount of your debt you will either have lower monthly payments or you can pay it off completely.
When is it Right?
Suppose you lose your job or there is a big medical emergency and you suddenly find yourself in debt. You weren’t expecting it and chances are you don’t have the budget to pay off the debt. Debt settlement falls somewhere between a debt consolidation program and bankruptcy. If consolidation isn’t going to work but you don’t want to resort to bankruptcy then you know settlement is right for you. Also if creditors are threatening to file a lawsuit or if they have already passed the process on to a collection agency and those people are harassing you then you should go for debt settlement.
How Does it Work?
Creditors aren’t legally obligated to accept any debt settlement offers that you extend. If, however, they do agree to your offer then it will be based on your total debt amount, the age of your accounts, and the status of your delinquent accounts. Before you go to your creditors you should go to a free debt counseling session so that a professional can review your financial situation and help you decide if settlement is right. Then the settlement company will create a realistic budget based on your income and how much you can afford to pay off on the debt. Depending on the funds you can save up for settlement the company will set up a 2-4 year program term. Then a trust account is set up and this is where you will put a monthly amount, instead of paying your creditors, until you have enough for negotiation, which is usually at about 50% of the total debt you owe. Once the debt settlement company believes you have enough money then they will try to strike a deal with your creditors or collection agencies. If they succeed then you pay of lump sum from the trust account, paying off your debt and freeing yourself financially.
You do have to pay a fee to the company who negotiates your debt, and this amount will depend on the number of credit accounts you have, the amount you owe to lenders, and how much money you will be able to save through negotiation services. Also, since you stop paying your creditors for a few months to save for negotiation, your credit report marks the account as “delinquent”. This will ruin your credit immediately, though if you’re careful you can improve it over time. Finally, any funds that the creditors forgive the IRS sees as taxable income, which means more money out of your pocket.
Debt settlement is a great way to lower your monthly payments, reduce the total amount of your outstanding balance, and get out of debt relatively quickly. You’ll be able to avoid harassment calls from credit agencies and soon enough your accounts will read as “settled” or “paid as agreed” on your credit report. There are some downsides to negotiation, but depending on your circumstances and how quickly you need to be free of debt this may be your best option. As with anything involving your money, think carefully about your budget and current financial situation to determine which debt-relief method is right for you.