Debt negotiation is a process where your debt is “negotiated down” by the lender by either a partial or total repayment of the debt. It is also possible to extend it to situations where all the outstanding debt (all accounts) are settled, although this can only occur after the account has been successfully bargained down.
If a settlement has been reached through negotiation, been reached, you’ll have to repay some portion of the debt owed, generally less than the initial balance. It may be possible to stop making regular payments or repayments until the account has been settled. This depends on your financial situation.
How does debt negotiation work?
For consumer debt every lender has a different procedure for negotiating to reduce the amount of their account(s). In general, you will need to contact the lender by phone and talk to them after they’ve analyzed the financial circumstances. They may ask you for documents that prove your position as a customer who isn’t able to pay the loan in full.
Once you’ve explained your situation to the lender, they may be willing to collaborate on an arrangement for repayment that is lower than the amount owed. Keep in mind that you will still likely need to make payments towards the debt until it is completely paid back, even if a negotiated settlement can be reached.
In certain situations it is possible that a debt-negotiating agent need to reach out to your creditors directly on your behalf. If you’re not able to speak to customer service representatives by telephone, this would be necessary.
Once your debt has been reduced to a percentage of the original balance due you will have 36 to 48 months to pay it back. You might be able to pay off all debts in less time according to the circumstances.
What types of debts are possible to negotiate?
A majority of consumer debt can be resolved with a lender. A majority of the types of debts that can be repaid in time, such as personal loans, student loans and lines credit are negotiated with the correct contact in the office of your lender.
Businesses have a different story altogether. There are very little chances of receiving an advance from a business or owner of a company to whom you are subcontracting services.
Take note that lenders might not provide any repayment plans for your debts if you’ve not paid your bills or are in collection.
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What are the advantages of the process of debt negotiation?
Debt negotiation can bring many benefits. It is possible to forgive your entire debt balance or just a small portion dependent on the lender you work with. This can provide some cash flow relief until your repayment plan is completed.
You may be able negotiate a longer period of time without needing to make each month for debt. This is beneficial if you cannot make the larger monthly payments and you require longer time to bring your finances into order.
In some cases it is possible that debt negotiation could be the only solution when you are in the process of filing for bankruptcy or wage garnishment.
Noting that debt negotiation can adversely affect your credit score in the short-term is vital since it could be identified by creditors as an insolvency. The lender may offer to sell your debt to collection agencies or refer you to legal action if the agreement cannot be reached.