How to Negotiate Debt?
Finding debt relief through debt negotiation can seem very appealing at the outset. However, before deciding on this option, it is important to understand the pros and cons of the process of negotiating credit card debt.
When you enter into debt negotiation, it is generally done through a third party debt settlement firm. Initially, you stop all payments to your creditors, and instead begin making monthly payments into a trust set up by the debt negotiation company. Once you have accumulated between 25 and 50% of your total debt, your debt negotiator begins communications with your creditors to negotiate a settlement that is far lower than your total balance. This amount is then paid in one lump sum.
There are a few benefits to debt negotiation, the biggest and most obvious being that you don’t have to pay as much back as you owe, but these and other benefits are different for everyone. You must be at least 3 months behind in order for a creditor to even consider debt negotiation with you. You credit will take a hit for the debt forgiveness. And you will have to pay taxes on the forgiven amount. But if you are considering bankruptcy as the other option, this is by far the better choice as it doesn’t trail you your whole life & the ding on your credit won’t be as bad. One other benefit of debt negotiation is that if you use a company to do it for you, you can turn all your collector calls to them because they are working on your behalf and that can reduce the stress for you.
Debt negotiation has a downside. First, it costs a lot to hire a company to do the work for you. The going rate is about 20% of the debt you are forgiven. So if you owe $10,000 and are forgiven $5,000 you will have to pay the company $1,000 to negotiate the debt for you, and sometimes they want a portion of it up front. If you do it yourself, you will have to take a lot of time and keep your head on straight and don’t let your emotions get in the way. Second, you have to stop making payments to your creditor which will make them mad so you may start getting some nasty phone calls. Third, you will owe taxes on the forgiven amount. And last, it will damage your credit some.
Carefully consider the benefits and disadvantages to debt negotiation to determine if it is right for you, and then you can decide whether to hire a company or to do it on your own.
Is adebt negotiation service a good idea? How to make the most of a terrible situation.
Tags: credit card debt negotiations, debt, debt negotiation, debt settlement, finances, Personal Finance
