Debt negotiation involves negotiating with finance companies and lenders in order to persuade them to settle your account for a lesser amount. Many lenders are willing to settle debts for a smaller amount rather than turn them over to collection agencies and receive even less for the debt. Debt negotiating firms make agreements with creditors on your behalf for a fee.
Types
There are two basic forms of loans: secured and unsecured. Secured loans are those that are backed by the value of the property financed. Secured loans typically are given on cars and homes and are not usually subject to debt negotiation because lenders can repossess the property to retrieve their investment. Unsecured loans include medical bills, credit cards, student loans and personal loans. These often are open to negotiation with the original creditor if you cannot make the payments.
Time Frame
Debt negotiations with the original financing organization usually are made before the debt gets sent or sold to a collection agency, typically before the amount is 150 days overdue. Many credit card companies and department stores send bills to collection agencies when they are more than 90 days overdue.
Misconceptions
Once a credit collection agency takes over a bad debt, the actual amount that you can settle for can be reduced even more. While collection agencies may try to use scare tactics to get borrowers to pay the full amount, more often than not the collection agency has purchased that bad debt for less than half of the amount due, and it is willing and able to take less to settle the account.
Benefits
The benefits of using a debt negotiating firm or professional credit counselor outweigh the costs for many people. The credit counselor has experience communicating with creditors and knows the limits of how low they can go to try to settle an account. Credit counselors typically bundle all overdue accounts so that the consumer has only one bill to pay to the negotiator, which also includes a fee for the services.
Warning
Get all agreements in writing from collection agencies and from creditors who have agreed to a settlement, including those settlements that may have been procured from a credit counselor. Only correspond with creditors in writing to maintain a paper trail of the negotiations. Financial consultants at the Credit Infocenter advise consumers to maintain good bookkeeping records and receipts of all correspondence and payments. Creditors often do not honor agreements made verbally.
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