How Debt Management Programs Work
Why Negotiate Debts
During rough financial times, there’s no shortage of reasons that you might need debt negotiation. Job loss, medical issues, divorce, house fire, and a family death are just a few reasons people negotiate their debt. You might simply be in over your head and need some relief from your overwhelming bills. Anytime you can’t afford to make your monthly debt payments, debt negotiation is an option.
What to Say to Your Creditors
Negotiating your debt requires agreement from your creditors. You have to know the right thing to say to convince creditors to take a loss on what you owe.
Before you call your creditor to talk about debt negotiation, you need to gather some information about your account like the account number and amount you owe.
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Know exactly what you want to negotiate. You might ask for a reduction in the overall amount you owe or you could ask for a lower interest rate. Either would make it easier for you to pay off your debt.
You need to be prepared with a payment offer that includes the total amount you can pay and the time period over which you can pay it. For example, you might negotiate a one-time payment that’s 40% of the total amount you owe.
Hardships With Debt Negotiation
Many debtors aren’t sure what to say to a creditor to get them to lower the debt bill, so they use a professional debt negotiator to help reduce the balance owed. A reputable debt negotiator has experience working with many of the major credit card companies, so they know the thing to say to successfully negotiate your debt. Unless you’ve negotiated debt before, you may not achieve the positive results of a professional.
The Federal Trade Commission warns against confusing debt negotiation with consumer credit counseling which allows you to pay your debts in full over time.
Debt Negotiation Advantages
There are a few benefits to negotiating your debt, including the obvious ease of paying off your debt.
- • By negotiating your debt, you end up with easier payments that relieve tension in your budget.
• You’ll often be debt-free sooner with debt negotiation than you would if you paid your debts off completely over time.
• Debt negotiation saves money. Even if you only manage to negotiate a lower interest rate, you’ll still save on interest charges.
• Reducing your debt can relieves much of the stress associated with being overwhelmed with debt. You can sleep better at night and worry less.
• Debt negotiation is a positive step toward financial freedom. Once you’ve paid off your debt, you have complete control over what happens to your money.
Disadvantages of Debt Negotiation
There are a lot of good reasons for debt negotiation, but there are some drawbacks too.
- • Your creditors could turn down your negotiation offer, leaving you to pay your debts in full under the original terms.
• Many creditors won’t consider debt negotiation unless you are behind on your payments. So, if your account is current, you’ll have to miss a few payments to negotiate your debt. Late payments go on your credit report and remain for seven years. That will cause your credit score to drop and make it difficult to get credit cards and loans in the future.
• Debt negotiation could increase your tax liability. Your creditors cancel part of your debt when you negotiate a lower debt payment. If the amount cancelled is more than $600, you’re required to report that amount to the Internal Revenue Service as taxable income for that year.
• You could have trouble getting creditors to agree to debt negotiation if you don’t have experience working with them. That’s why it’s better to use a professional debt negotiator who has successfully negotiated debts with creditors.
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Before you decide to negotiate your debts, evaluate your ability to pay them in full. Make sure you realize both the advantages and disadvantages before making a decision. If you’re not certain you can get your creditors to agree to a debt negotiation, don’t hesitate to hire a professional to help you. The United States Organizations for Bankruptcy Alternatives is a debt negotiation association that helps consumers choose a reputable debt negotiator. Contact them by phone by calling (281) 820-0666
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