Debt Settlement & Negotiation

Debt negotiation is the process of arranging what is known as a debt settlement. A debt settlement is an arrangement between a debtor and creditor, in which the debt is satisfied (closed) for less than the full amount that is owed. Simply put, debt negotiation is when you negotiate to pay off your debt, but for less than the amount fully owed (the creditor will settle for less).

Who Should Consider Debt Settlement?

People who are legitimately unable to catch up on their debts, struggling with monthly payments, and who are not able to utilize consolidation programs (due to lack of assets or poor credit history) are good candidates for debt settlement.

Why Would They Take Less? While it's probably obvious why you (the consumer) would want to pay less, it may seem unusual that the creditor would be willing to accept it. Under the right circumstances it's not uncommon for a creditor to accept a settlement proposal. There are two motivations for them doing so: If they are concerned that a debtor may file for bankruptcy, they would rather receive a partial payment than what (if anything) they'd receive through a bankruptcy settlement. Accepting less directly from the debtor can still end up costing less than hiring a collection agency, which can cost them as much as half of the recovered funds. Of course, that certainly doesn't mean any particular creditor has to accept a settlement proposal, it's ultimately at their discretion how they wish to pursue the debt.

What Debts Can Be Settled? It is mostly just unsecured types of debt that creditors may accept settlement propositions for. Un-secured debts are those that do not involve any collateral for security, like department store cards or medical bills for instance. An example of a secured debt would include things like car loans or a mortgage, which would be used for security collateral. Negotiable debts might include: Tax debts Collection agency debt Student loans Department store credit cards Personal loans (unsecured) Old service bills (for instance utilities) Legal and medical bills High-interest credit cards

How Does It Affect My Credit Rating?

Settling your debts may have an adverse effect on your credit, but not normally to the degree that declaring bankruptcy would; and often not as badly as continually being delinquent on payments.

How Do You Negotiate Your Debts?

While it's certainly possible to represent yourself in debt negotiations, most people choose to enlist some help rather than deal with it alone. As you probably already know, dealing with creditors can be a stressful situation, and experts have the added advantage of experience in dealing with the matter, which can result in better settlement terms.

The settlement terms will vary enormously depending on the borrowers individual state of affairs, and the loan company isn't obligated to consider debt settlement proposals at all. It's more probable for lenders to contemplate negotiations when they are concerned about the person borrowing going bankrupt, in which partial settlements are still usually more than what would be received from a bankruptcy settlement.