Debt Negotiation - Reduce your debt and pay it off fast
If you're unable to manage your debts simply by cutting your expenses or you don’t find it favorable to consolidate your bills and reduce the interest rates, you may go for a debt negotiation program. Whether you have mounting credit card bills, payday loans or medical bills, a debt negotiation program can help reduce your outstanding balance so that you find it easier to repay and get out of debt.
- Lower your monthly payments
- Reduce interest rates
- Waive late fees
- Eliminate collection calls
- Avoid bankruptcy
- Have only one monthly payment
- Become debt free
(Open 7 days till 9)
What is debt negotiation?
Debt negotiation or debt settlement is all about negotiating with your creditors or collection agencies (CAs) in order to reduce your outstanding balance. The purpose is to make your creditors accept payment up to 40-60% of what you owe while the rest is forgiven.
What debts can be negotiated?
Debt negotiation is applicable to debts such as:
- Unsecured credit cards
- Medical bills
- Payday loans
- Personal loans
- Store cards
- Bounced checks
Student loans can be negotiated if they are not insured by the Federal Government.
When should you go for negotiation?
Negotiation may not be a debt solution for all. It depends upon the individual situation and the amount he owes. Here are the 6 situations when you can opt for debt negotiation.
- You cannot make payments for past 3 months
- You're in hardship such as job loss or medical emergency
- Creditors are threatening to file a lawsuit
- The account is sold off to collection agency and they're harassing you
- You cannot make use of debt consolidation program
- Bankruptcy seems to you as the only debt relief option
What happens in debt negotiation?
Negotiation is offered by settlement companies which communicate with creditors and debt collectors in order to reduce your outstanding balance. Creditors agree to negotiate depending upon the status of your delinquent accounts, your total debt amount and the age of the debt accounts. Here are the 6 steps in a debt negotiation program.
- Debt counseling: A debt negotiation or settlement company will offer you a free counseling session. Herein a counselor will review your situation to find out if a debt negotiation program is suitable for you.
- Realistic budget: The company will help prepare a realistic budget for you in order to free up cash flow so that you can pay off your bills after negotiation. The budget gives a clear idea of what you can pay and how much the company needs to negotiate on your behalf.
- Calculate program term: The company will review your income and set the program term for 2-4 years depending upon how much funds you can accumulate for debt payoff.
- Trust account: The company will create a trust account (bank account) for you. Instead of paying creditors, you'll have to deposit a monthly payment into the trust account. This continues till the funds accumulated are enough to start the negotiation.
The trust account does not earn interest. But it is insured by the FDIC (Federal Deposit Insurance Corporation) for an amount up to $100,000. You will receive monthly statements of all transactions on your trust account and the funds available for negotiation. - Negotiation with creditors/CAs: Negotiation starts off when you've saved about 50% of your outstanding balance into the trust account. The amount negotiated depends upon the creditor/CA and the money you owe.
- Settlement offer: The negotiation company will not settle the debt without your approval. Once the creditors (or CA) accept a reduced settlement offer, the company will request them to send you the offer in writing. Based on the offer, you'll make a lump sum payment to your creditors from the funds in your trust account. Your debt is thus settled at an amount lower than what you owe.
How do you benefit from negotiation?
Debt negotiation offers you the following benefits.
- Reduced balance: Negotiation helps to reduce your outstanding balance so that you can pay off bills faster than you've ever thought possible.
- Lower payment: Your monthly payment to the negotiation company is comparatively lower than what you've been paying your creditors.
- No extra charges: Negotiation helps you to avoid paying extra charges like late payment dues or over-the-limit charges (for credit cards).
- Avoid harassment: Your creditors and collection agencies may stop making harassing calls for debt repayment.
- Negotiate account status: The negotiation company may negotiate with your creditors/CAs and try to get the account reported in your favor. This is to make sure that the account status on your credit report is "Paid as agreed" or "Settled" etc. The purpose is to minimize the negative impact on your credit.
How much do you pay for negotiation?
Debt negotiation fees depend upon the number of credit accounts you have, the amount you owe and the money you can save through negotiation. Some companies may charge 25%-35% of what you save.
Does debt negotiation hurt your credit?
Creditors don't agree to negotiate the debt until and unless you're behind for 3 months or more. Moreover, negotiation requires you to stop paying creditors till you have gathered enough funds to settle your bills. Since you don't make payments for a number of months, your credit report shows the account as "delinquent". Your account may also be charged-off by the creditor or collection agency. Such things ruin your credit and bring down your score. However, once you settle the bills, your credit score will improve gradually with time.
What are the tax consequences?
When your bills are settled, the IRS considers the amount forgiven as taxable income. For example, if your forgiven debt is $4500 and you're in the 15% tax bracket, then you'll have to pay $675 as income tax. However, you will not be liable for such taxes if the creditor settles your debt because you protest an owed amount.
With debt negotiation, your credit gets tarnished and you may incur taxes on forgiven debt. However, negotiation reduces your liability towards debt and here lies its importance. The purpose of debt negotiation is to help you fulfill your obligation so that you can lead a debt free life.
Related Readings
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#1
04-10-2008, 05:59 PM
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Join Date: Apr 2008
Posts: 1
Credits: 63
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Sub:
Debt Negotiation - Reduce your debt and pay it off fast
Hi-I'm new here. I have a couple of questions:
I started a business several years ago and it went south 3 years into it. I have several foreclosures on my credit report as a result. However, I just recently checked my credit report and surprisingly it is a decent score (650). I have approx. $10K in credit card dues which has some really high interest rates 30%. I have been paying the minimum for over a year now - until I decided what to do about it. (Since I had the foreclosures I figured that my credit score would be extremely low and was thinking about just letting the credit card go unpaid) I now have funds to pay approx. 90% of the balance down and want to know if I should pay the balance down or try to negotiate a lower payoff amount and keep some of the funds. Also, if I do try the debt negotiation how will it affect my credit score. 
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#2
04-10-2008, 11:46 PM
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Sub:
First, congratulations on you improved credit score.
 Foreclosures normally stay on the report for seven years and get removed afterwards. Hence, if the time period has passed by already, then you don't have to worry about them for not appearing in your report. Now regarding the issue in hand, if you can pay-off the credit cards, pay them off, because any unpaid credit will again can ruin your score. However, you can negotiate with the lender regarding lowering the interest rate. Or, can consolidate all the high interest cards to the one with the lowest rate and close the others. If you are so far current with your payments( paid at least the minimum amount in all) a debt negotiation or settlement program may not affect the score very adversely. However, you have to make sure that you stay current on the program also. Hope the inputs help. If you have any more doubts in your mind...shoot it to us.
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#3
05-15-2008, 11:10 PM
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Guest
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Sub:
sif or bif all good
i you can pay off the full balnce the do so,, your overall score will be better, but if you really cant or it will take to long, then save the money and settle out the accounts, your credit will still improve and you will have it updated much sooner, i setteled a few bills a while back and my credit score now is 760, so im okay , and dont use a credit counceling service, its a snag, just call and negotiate creditors and offer them immediate funds to settle the account, no less than 50-percent, between 55=75 percent, ,, good luck
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#5
05-16-2008, 06:53 AM
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Sub:
compare debt negotiation vs credit counseling
If I were you I would strongly consider you look into a consumer credit counseling program first. They can get you one payment with much lower interest rates "6-10% usually " so that you get the debt knocked out much faster than on your own. It will also not hurt your fico score and you will be able to pay off bills much faster than on your own.
However if you struggling and you are basically at the point were you just really can`t afford your payments and get overextended than maybe a debt negotiation or settlement program might fit your needs. A good settlement company can settle your bills for usually around 40% and sometime as high as 60%. Be aware though that settlement will hurt your score because your bills have to be past due before you negotiate creditors for a settlement. I would suggest that you compare debt negotiation vs credit counseling. I usually advise to check first if you can afford the monthly payment. Debt negotiation or settlement is a hardship program and best for people that don't qualify for debt management, can't continue paying minimum payments, can't borrow to pay off debts and don't want to file bankruptcy. I know I sound like a broken record because I always put this on the end of my posts but What ever route you choose please be sure to look any company you are considering with the BBB. Good luck to you qms006 . I am sure things will work out.
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#6
01-31-2010, 06:04 AM
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Guest
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Sub:
debt
i recently recieved a list of debt that has been ignored for the last 6 years(divorce,limbo)no excuse i have just awaken and need to face these items. 1 account 6 years delinquent started$5200.00 now 8500.00. The only one open i guess enough to constantly be denied any credit any where..Have paid off mortgageand two vehicle loans why why
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#7
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Sub:
Hi John,
It's been a long time you have ignored paying towards these debts and this is why the outstanding balance has increased so much. You're right in saying that these delinquent accounts will make things difficult when you apply for new credit. Thus, it'll be worth your while to pay them off as early as possible. Debt negotiation can help you in this situation. You can lower the outstanding balance on the accounts through proper negotiations with your creditors. They may also waive off certain extra charges and fees. Once you pay off the debts, you can get the accounts reported as "settled" or "paid as agreed" to reduce the negative impact on your credit.
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#8
Today, 05:05 AM
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Guest
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Sub:
wanting to make change
I'm a recovering alcoholic, it'll be one year on the 26th of march. And because of the drinking I've destroyed my financial back round. But now I'm clean and tacking care of my self and family, I just need to do the same for my past to better my future. Now for what I can think of the companies and amounts insist of Key Jewelers $436, Com Cast $287, Liberty Mutual $871, Bally Total Fitness $3,800 and others I can't seem to remember at this present time. So if you can give some kind of insight on this matter I'd be much obliged.
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