Debt negotiation refers to a process in which the debt is “negotiated down” by the lender, via either full or partial payment of the debt. It could also extend to situations where all of the debt outstanding (all accounts) are paid off, however this would only happen after an account is successfully reduced in value.
A negotiated settlement would have you repaying a portion of the debt, generally smaller than the original balance. It may be possible to cease paying installments or monthly payments until the balance is settled. This will depend on the financial condition of your situation.
What is the process of Debt negotiation?
Every lender has a different process for negotiating down consumer debt. Most of the time, you’ll need contact the lender via phone and negotiate with them when they are aware of your financial situation. They may request evidence in writing that supports your claim as a consumer who isn’t able to pay the loan in the full amount.
Once the lender understands the specifics of your situation, they might be willing to work with you to come up with an arrangement for repayment that is lower than the amount due. Be aware that you’ll likely need to pay some amount to the debt until it is fully paid, even if a negotiated settlement is reached.
Sometimes, a debt negotiator may have to call creditors on behalf of you. This is only necessary if you are not allowed to speak to a customer service representative by telephone, for example.
When your debt is reduced to a proportion of the amount due you will have 36 to 48 months to pay it back. You might be able to settle all accounts in shorter periods of time depending on the particular case.
What kinds of debts are there to deal with?
A majority of consumer debt can be resolved with an institution. Most types of debt that can be repaid in time, like personal loans, credit card debt, student loans, and lines of credit can be negotiated with the right contact at the lender’s office.
Business debts are another story entirely. If you’re having a loan from a business or a business owner with whom you are subcontracting services, your chances of negotiating the debt not very likely.
It is important to be aware that certain lenders might not be willing to negotiate the repayment schedule for your debt, particularly if you have missed a couple of payments or the account is in collections.
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What are the advantages of borrowing?
Debt negotiation has many benefits. You could be able to forgive the whole balance of your debt, or a portion depending on which lender you work with. This can bring some cash flow relief for you until the repayment plan is completed.
Debt negotiation may provide for an extended period of time during where no monthly payments are needed. This is a great option if you can’t make more monthly installments and want longer time to put your finances in order.
If you’re facing bankruptcy or wage garnishment in some instances, debt negotiation might be the only alternative.
It is important to note that debt negotiation may adversely affect your credit score at least in the short term, because it is listed as a kind of default. In the event of a lender default the debt could be sold to collection agencies or subject to legal action in the event that you are unable to make payments after an agreement has been made.