What is debt negotiation

Debt negotiation is defined as the process by which outstanding bills and debts, are lowered through working with your lenders. This process will not eliminate your debts. It is designed to offer your creditors and you a mutually acceptable solution to your outstanding debts. With this option, you will retain your credit standing, while your creditors will still collect a portion of monies owed to them.

 

Video: Understanding the Fair Debt Collection Practices Act

Why negotiate

Negotiating your debts is an option available to consumers to avoid more serious debt situations, such as bankruptcy. Debt negotiation will not negatively affect your credit report or FICO score. You will not be defaulting on loans or lines of credit. By negotiating the amount owed, the debtor pays less on the owed amount while the creditor is able to collect a portion of the debt.

Debt negotiation is a useful option for creditors

debt negotiationDebt negotiation can be beneficial for the creditor. It will enable them to collect a portion of the owed amount, rather than lose the entire sum. When a consumer files for bankruptcy protection, it’s a no-win situation for both the consumer and the lending agency. The lender will typically not collect much, if anything in a bankruptcy settlement. Typically, the credit company will opt to sell the debt to a collection agency for pennies on the dollar.

What to keep in mind when you contact your creditors to negotiate

When contacting your creditors, stay to the point. Do not elaborate on too many personal details or sob stories. Explain your financial situation and why you are unable to pay. Offer a reasonable solution to lower these debts. Do not use the threat of defaulting on your bills as leverage in your negotiations. This is implied by the process itself and is not tactful in convincing your lenders that you are serious about compromise. Follow the steps below when you are ready to negotiate for yourself and avoid making any procedural errors during the process.

 

Video: Learn how to negotiate with the credit card company

 

Steps to negotiate debt by yourself

  1. credit card debt Research all the terms of your debts. Find all associated fees and surcharges included in the fine print. Know your interest rates and also any annual premiums on accounts.
  2. Total up all outstanding balances, including fees and taxes.
  3. Asses how much you will be able to pay your creditors. Keep in mind your offer should be low to allow room to negotiate, but not so low that your creditors will not take your offer seriously.
  4. Make your request to your creditors in writing.
  5. If lender agrees to your terms, make payment immediately. Request written confirmation of receipt of the payment and terms.
  6. Keep track of all correspondence. File it. Avoid using phone calls.
  7. Follow up with your creditors and make sure all agreements were honored.
  8. Review your credit report in 2-3 months to verify items cleared properly and immediately contact lenders for any discrepancies.

Using an attorney to assist in your debt negotiation

do-it-yourself debt negotiationThere are attorneys who specialize in representing consumers with do-it-yourself debt negotiation. They should be considered if you have substantial debt to settle or are otherwise uncomfortable with doing it alone. Attorneys’ fees for this assistance are not cheap and should be weighed against how much you owe. Anything you pay a lawyer will be deducted from any savings negotiated. Explore options of using attorneys on a fee basis for reviewing your documentation and agreements put forward by your creditors. In this way you will still be completing the negotiation yourself, but will have a lawyer double-check your work for errors. Fee based lawyers will save you substantially by allowing you to complete most of the process yourself. Check with the American Bar Association for lawyers specializing in debt negotiation.