Debt can put a financial and emotional toll on you and your family, especially if you feel like there is no way out. Thankfully, there are many debt relief options available to you, including debt negotiation.
What Is Debt Negotiation?
In a nutshell, debt negotiation is when you bargain for a better payment plan or a reduced rate. However, while it may sound straightforward, renegotiating your debts takes skill and a lot of patience as you attempt to work with your lenders.
The outcome of debt negotiation also depends on who your creditors are or if you pay them directly. Many creditors use collection agencies that act on their behalf to collect money using whatever means necessary.
Collection agencies are third party representatives, so it’s important to remember that:
- They are not the lienholder or creditor responsible for your debt, and they might not be able to change the terms.
- Collection agencies operate under one golden rule: time is money. That said, they’re more interested in getting the money fast, so asking for an extension may not go over well.
- NEVER make promises you can’t keep. If you manage to renegotiate your debts but fail to follow through, you’ll have to deal with the agency and the creditor.
If you owe money directly to the creditor, it may be easier to negotiate. Larger lenders are less likely to change the terms, but providing a realistic payment plan can go a long way. Ultimately, the specifics of the negotiations depend almost entirely on ‘the who’ – the person or entity you owe money to.
Ways to Pay
One of the benefits of debt negotiations is that you can choose how you pay. If you have the resources to do so, some creditors will accept a lump-sum payment of at least 75% of your total debt amount. In some cases, creditors may even accept less than 35% of the total amount you owe, but if you can, aim for a higher percentage so you can kiss that debt goodbye.
If you can’t afford a lump sum payment now, you may need to draft a payment plan that is realistic for you and profitable for the lender. Be careful - never propose a plan you can’t stick to, or there may be consequences.
Payment plans usually result in paying off the debt entirely but over an extended period of time. For example, you owe money on your car loan. If your regular payment is $350 over three years, you could propose a new payment schedule of $275 over five years instead.
Does Debt Negotiation Affect My Credit Score?
Debt can ruin your credit score, but the good news is that resolving your debt through debt negotiation will help improve your score. Debt negotiation takes time. The longer a debt goes unpaid the less valuable the debt becomes. The flip side of this is the longer the debt goes unpaid, the longer your credit score is negatively impacted.
One thing to remember is, if you are in a position where you are not able to afford to make at least the minimum payments on your debts, your credit score will be negatively affected regardless. Even if you are in a position to make the minimum payments on your debts, it is more than likely not in your best financial interests to do so.
Debt negotiation or filing for bankruptcy will impact your credit score. This sounds like a bad thing, but you can recover your credit score in time, and there are more resources available than ever to facilitate your financial recovery.
Consulting with an experienced attorney to advise you on the pros and cons of the different ways to navigate your debt, and being able to make an informed decision on your financial future, is invaluable.
Contact us today for a free consultation.