Debt negotiation is the process in which your debt is “negotiated down” by the lender, via either full or partial repayment of the debt. It could also extend to situations where the debt outstanding (all accounts) are settled, although this will only happen once the account has been successfully bargained down.
If a settlement negotiated by the parties has been agreed upon, you will have to repay a percentage of what is owed, typically lower than the balance originally. It could be possible to cease paying regular payments or repayments until the account is settled. This depends on the financial condition of your situation.
What is the process of Debt negotiation?
In the case of consumer debt the lender will have a different procedure for negotiating to reduce the amount of their account(s). Typically, you would have to contact the lender by phone and then negotiate with them after they’ve analyzed your financial situation. They may ask you for any written evidence that supports your position as a client who isn’t able to pay the debt in full.
Once you’ve explained your circumstances to the lender, they may offer to work together on the terms of a repayment plan less than the debt amount. If you do reach an agreement to settle, you’ll have to pay the debt.
Sometimes, a debt negotiation expert might need to contact creditors on behalf of you. If you’re not permitted to contact customer service representatives via phone, this would be necessary.
Once your debt has been bargained down to a specific percentage of the original balance due, you’ll have typically 36 or 48 months to repay. There is a possibility to settle all accounts in shorter amounts of time depending on the particular case.
What types of debts could be negotiated?
The majority of consumer debts can be resolved with a lender or creditor. Many types of debt which are repaid over time, such as personal loans, credit card debt, student loans and lines credit are negotiated with the appropriate contact at your lender’s office.
A separate issue are business debts. If you’re having a loan to a business owner to whom you are sub-contracting for services, the chances of renegotiating that debt are very slim.
Remember that lenders might not offer any repayment plans for the debt you owe if not paid your bills or are in collection.
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What are the advantages of the process of negotiating debt?
There are many benefits in debt negotiation. Depending on the lender, you might be able to have the entire balance of your debt cancelled or only an amount of outstanding balance repaid. This could provide some relief for cash flow until you’ve completed your repayment plan.
You may be able to extend the duration without having to make monthly debt payments. This is beneficial if you can’t make more monthly installments and want more time to get your finances back in order.
If you’re in the process of filing for bankruptcy or wage garnishment, sometimes debt negotiation is the only alternative.
It is important to note that debt negotiation may affect your credit score at least in the short term since it will be reported as a form of default. The lender could sell your debt to collection agencies, or even refer you to legal action if the deal isn’t reached.