Debt Negotiation happens in two basic ways: by a professional, or by yourself.
Here are a few strategies the professionals use when handling a debt negotiation on your behalf.
In this discussion, we are only looking at “unsecured debts”, which includes credit cards or medical debts most commonly. It simply means any debt which has no collateral, such as a car loan, home loan, boat loan, etc.
Before you start any debt negotiation, you should expect that you’ll take a “hit” on your credit score. Any creditor who lent you money is not going to just let you get out of paying any less than the full balance and let you retain perfect credit.
That said, all credit automatically repairs itself when all future payments are made on time. In many cases someone can suffer credit damage from a debt negotiation and within two years, provided all future payments are made on time, have an excellent “A+” 730+ fico score.
In addition, many people confuse credit “Score” and credit “ability”. If you have a perfect 850 fico score, but do not qualify for more financing because you are carrying too much debt already relative to your income, then you have zero credit ability. Frankly, the creditors have worked hard to make you believe these are the same, so that you keep paying. If you are looking for debt negotatiation, you are probably carrying too much debt. If you’re willing to stop using your credit cards for a while and don’t plan to buy a home or car in the near future, then it may save you many thousands of dollars.
The most common strategy the professionals use is to stop making payments, and instead save the money up so that a single lump-sum payment can be offered.
In addition to this, a debt negotiation professional will also prepare a specially formatted letter containing a legitimate reason why you could afford the debt before, but cannot afford it any longer, and if things continue, it will end in bankruptcy or charge-off. This usually contains a factual story, referred to by professionals as a “hardship”. This can include medical events, loss of job or income, dramatic increase in expenses due to some sudden unforseen reason i.e. divorce or adjustable mortgage changes, or a natural disaster.
There are a few reasons why a debt negotiation professional can reach a better, lower debt negotiation settlement offer than you doing it yourself.
First, debt negotiation companies deal with thousands of clients at a time, so they’re able to reach higher up the chain of command. A consumer will usually reach a lower-level technician, who is not authorized much leeway for debt negotiation. An attorney or non-attorney professional can speak with a vice president because they are offering sometimes hundreds of thousands of dollars spread over many accounts based on certain status and net discount amount.
Second, debt negotiation companies know how to say and how to package what needs to be said, at the right time, to the right people.
Third a debt negotiation expert knows the system and averages for each company. A creditor has the legal right to sue you in court for non payment, which could result in a legal judgement, which can mean garnishment of wages directly from your employer, additional court fees, and more credit damage. A professional debt negotiation company can minimize the risk of being sued while still reaching a settlement around 42 cents on the dollar.
Last, because a debt negotiation company has either attorneys on staff, or non-attorney trained negotiators on staff (depending on your state’s laws, and your file), they know the creditor’s tricks. The credit card industry makes literally billions of dollars per year in profit, and they don’t make this by being nice. However nice the customer service representative may seem on the phone, they have one agenda: to get as much money from you as possible. Most typically, for anyone in a bit of debt trouble, the creditor will suggest “Credit Counseling”.
The dirty secret about credit counseling is that “Credit Counseling” was invented by the credit card companies. They want you to feel like they’re helping, but when you enroll in these programs, you’ll repay 100% of your debt plus interest, suffer credit damage, and they’ll often collect a monthly fee on top of it ($49 a month x 48 months, for example is $2,352 in fees, not including interest). They usually won’t tell you this, but they also get a 15% “fair share fee” from the credit card company, so the IRS has revoked the “non-profit” status of many of these companies.
Like plumbing, taxes, or fixing your computer, you can handle debt negotiation yourself, or you can hire a professional. Those willing to educate themselves to learn how to do it right can definitely save some money. That said, for the reasons stated above, often times the settlement amount offered on a debt negotiation you conduct yourself may not be as discounted as what a professional may get, and therefore the service in almost all cases pays for itself. For example, if you get offered $.80 on the dollar, but a professional gets $.42, then it’s actually cheaper even with the cost of service to have a debt negotiation service handle your case.
One dangerous byproduct of staying in debt is not having enough time to invest for retirement. Most people don’t know exactly how much money they’ll need to retire. Do you? The sooner you use debt negotiation to clear your debts, the sooner you can build your investments to ensure you can retire the way you want – instead of living your golden years as a burden on family, with lower standard of living, or working past retirement.
The short answer is yes – honest debt settlement companies do exist. Now, let’s closely examine why it is you’re inquiring. If you’re experiencing financial difficulty, and have a strong desire to avoid bankruptcy, you’ve probably found an infinite amount of information from various sources relating to debt negotiation firms. And, much of this information contains either negative remarks or plenty of cautionary tales.
Are these stories true? In fact, many of them are – but much of what you’re hearing about the entire debt settlement industry is also simply not factual. If you take the proper time to carefully research any firm you’re considering to assist you with debt settlement, you should be just fine. Here are some tips to help you choose the right company:
If your credit card debt is enormous, beyond your capabilities, you are likely to get frustrated. Bankruptcy looks like a straight and simple answer to all your questions and confusions. Either declare bankruptcy to avoid further harassment from the credit card companies and the collection agency or pay off the whole debt amount with nothing left to eat or to wear. Bankruptcy is no better than suicide. Don’t give up even in the worst circumstances, if you think carefully every coin has two faces, and the same is true for every situation. With some effort and research you can find a way out of the credit card debt also.
Debt settlement is a negotiation on the debt you owe to the creditor. You can try it on your own, give a call to your creditor and explain the situation. Make a commitment to pay if the debt amount is reduced. There is no harm in trying, who knows, the creditor might agree for a reduction and you gain back a debt free status. However there are equal chances of getting the request rejected. You might be a victim of circumstances and be refused of assistance in any form. You may then require a settlement company as an intermediate.
Debt settlement companies talk to the creditors on your behalf and try to negotiate the debt you owe. Before you start with a settlement program, make it a point to check if the company has legal rights to practice trade in your state.
The federal trade commission has found several debt settlement companies practicing illegal trade and canceled their license in the respective states. In fact these companies are not allowed to exist legally in states like Mississippi, Arizona, Georgia, Hawaii etc. The Attorney General’s Office is a relevant place to check this.
Trade Associations like United States Organization for Bankruptcy Alternatives and The Association of Settlement Companies list information about the settlement companies and whether their business is in adherence to industry standards.
Make sure the company shows in the Better Business Bureau website and carries a logo of BBB on its website; this is to confirm it is accredited by a reliable source.
Do not hesitate to confirm the officer handling your debt in a settlement program is certified by the International Association of Professional Debt Arbitration.
What are Debt Settlement Programs?
Debt settlement Programs (a.k.a Debt Negotiation or Debt Reduction Programs) are debt relief programs that help you negotiate with your creditors to significantly reduce your overall unsecured debt (includes the original debt amount + interest charges and late fees). In layman’s terms, experienced negotiators help you alleviate your debt and pay up only a small portion of your total debt by identifying the best debt settlement program that suits your needs. Most debt companies can reduce your debt from 22% – 55% of your total debt. This allows you to settle your debt much more quickly. This kind of program is perfect for those who want to eliminate their debt in a couple of months.
Most debt settlement companies charge a client 9% – 14% of their total debt.
How does it work?
Step # 1
Decrease your Main Debt amount
Most debt settlement programs start by negotiating your main debt amount. On the average, the main debt amount is decreased by 35 % to 50 %.
Step # 2
Decrease Late fee charges
One of the reasons why debts increase to unmanageable amounts is the accumulation of late fees. In some cases, late fees can be more than the main debt amount. Most Debt Settlement programs work to remove the majority, if not all, of your late fees.
Step # 3
Decrease the APR (Annual Percentage Rate)
Just like late fee charges, the APR can also accumulate and add a whopping amount to your outstanding debt. Agencies negotiate to decrease this fee to a much affordable amount.
Step # 4
Pay the Monthly Settlements
Once your agency has settled the reduction of your total debt you must then make sure that you pay your settlements regularly. Keep in mind that your agency worked hard in reducing your debt to a manageable amount. Missing any payment might cause you more problems than what you had to begin with. The amount you have to settle is based on your current financial situation.
TIME FRAME
In most cases, the debt settlement process takes around 4-8 months. This timeframe, however, is not a strict rule. It can be reduced or stretched depending on the client’s request and capability of settling their account. It is not uncommon to hear that a normal credit card debt settlement can last up to 4 years or sometimes even more.
Why make use of debt settlement services?
Many countries all over the world are slowly waking up to the dangers of paying liberally through their credit cards. In many cases, even students right out of college are accruing debts that seem monumental. Bad debts can seriously affect your creditworthiness, making it almost impossible for you to get loans when you really need it. By availing of the services of a debt settlement agency, you can work out the easiest way to pay off your loans.
One of the best ways to get in touch with the best debt settlement companies is through online services that will give you access to a nationwide network of qualified debt relief providers. These services search the ongoing trends in the debt relief market and give you the best solution based on your unique financial needs. They do not require you to provide them with any secure or sensitive information. In most cases, you will get comprehensive data just by entering your debt amount, state and pin code into their search engines. With services such as these, debt settlement has never been easier.