What is Debt
Negotiation?
Debt
Negotiation, commonly referred to as Debt Settlement or Debt Elimination, is
a service that more and more people are leaning toward as they fall deeper and
deeper into debt. Debt Negotiation is considered a specialty service, or a hardship
service, which is mostly offered to people who "fall out" of a debt
consolidation program, can't make the minimum payment of a bill consolidation
program, or have large outstanding debts on which they haven't paid in the past
3 months. The main benefit of a debt negotiations service is that clients usually
only pay around 50% of the amount they owe to their creditors.
There are some downsides to debt negotiation, which will be explained below.
Here's how Debt Negotiation typically works. Once you sign up for a debt negotiation
program, you stop making payments to your creditors (if you were making payments).
No payments are made to your creditors during your participation in the program.
The debt negotiation company then either takes monthly payments from you which
it stores up in a holding account, or it has you store up the money in your
own account. During this process of accumulation, the debt negotiation company
is handling your creditor calls and negotiating with your creditors for a lower
payoff amount, typically around the 40-50% range.
Once a settlement is reached with your creditors, a lump sum payment is made
to them. Most debt negotiation companies also require the creditor mark the
credit report as "paid in full" so it doesn't show up negative on
your report once it is settled.
Although this sounds too good to be true, there are some downsides to debt negotiation.
First, your credit
will be awful while you're in the program. Second, if the creditor never agrees
to settle (which is very rare) then you end up with bad credit, and in worse
shape than where you were before.
To offset the bad credit problem, there are some settlement companies who include
a credit repair service (which you pay for, of course), which will remove the
negative items that were caused by the program. And, since all your debts will
be paid off by program completion, no new negative items will appear.
If you would like a free quote from a company similar to the ones mentioned
above, click here or call 1-800-646-2993.
