Is Debt Negotiation for You?

Debt negotiation is a relatively new form of debt relief that isgaining popularity for its results in reducing credit card andconsumer debt and because the process can also help homeownersavoid foreclosure by making home loan modifications more likely tobe approved. There are two schools of thought on the subject; onethat focuses on broken settlements, credit scores and directnegotiations while the other centers on the short and long termbenefits of the practice. First, the arguments against debtnegotiations:* Broken settlements – A settlement can be broken byeither the party executing the negotiation or the customer. True,there have been instances were companies didn’t followthrough on their promises to see the negotiation from beginning toend. The percentage of customers involved in those situations hasbeen small and could have been prevented with some due diligence.Many companies have been drawn into the debt relief industry by thesheer numbers of borrowers and their escalating debt starting inthe late 90’s. What had started as debt counseling run by afew non-profits mushroomed into an industry populated withthousands of new and inexperienced companies offering services farbeyond the scope of the original mandate of assisting indebtedcustomers with their debts Within those thousands of companies werethose that didn’t deliver on debt negotiations, counseling,or consolidation. Customers can also break a settlement by notmaking enough payments to settle the negotiation. Whether bycircumstance or intention, some will stop making payments duringthe 18 to 48 months of the settlement process.* Credit scores – A debt negotiation will likely decreasethe credit score of a borrower that enters a debt negotiation, butit depends on what that score is at the time the process starts. Avast majority of borrowers that start a debt negotiation arealready behind on payments and are consequently taking hits oncredit scores so the negotiation won’t have as much of aneffect. The second issue on credit scores is that the negotiationstays on the report for up to seven years. While that can be true,doing nothing will leave charge-offs and open balances on thereport indefinitely. Finalized, settled, and closed accounts areultimately a much better reflection on a credit report thanaccounts that appear intended and/or neglected.* Direct negotiation – Borrowers can initiate directnegotiations and, in fact, may be contacted by their lenders to doso. One problem with going direct is that there are normallyseveral accounts to be negotiated, all of which will need to bedone independently. A second issue is that the offers in directnegotiations are usually for lump sums or for payoffs within a fewmonths of agreement. Those types of payments are often unworkablefor the borrower, especially if there is more than one lump sumagreement at a time.The benefits of debt negotiations are as follows:* Immediate relief – Upon initiation of the debtnegotiation, the borrower will immediately experience anapproximate reduction of 50% on payment obligations for allaccounts involved in the negotiation. Reductions can vary,depending on the borrower’s ability to pay. By makingpayments in excess of the 50% reduction the borrower may be able topay off the negotiated balances faster.* Debt balances cut by 40 to 60% – Depending on the creditor,balances can be negotiated down by 60% or more. For a negotiationcovering multiple accounts the average reduction for the total is50%. Once the negotiated balances have been settled the accountsare considered to be paid in full with no further obligation by theborrower to the lender.* A wide spectrum of accounts which can be negotiated – Adebt negotiation can include credit cards, signature loans,department store debt, unpaid medical bills, unpaid utility bills,and more. This effectively gives the borrower a chance to wipe theslate clean without the disadvantages of filing bankruptcy.* Paying off all debts within four years – As credit cardbalances have accumulated for consumers over time, making paymentsthat materially reduce the principle balance has become difficult,if not impossible. For those that can only afford to make minimumpayments, a full payoff could take twenty five years or more.Calculated out over that time a borrower would pay many times theactual balance in interest alone. Contrast that scenario with afull payoff of debts over four years or less at approximately halfthe balance amount and the merits of debt negotiation become veryapparent.* Increased odds of approval for home loan modifications –A debt settlement can enhance an application for a home loanmodification by showing a reduction of consumer debt payments whichallows for a greater availability of a homeowner’s incometoward mortgage payments. In fact, a debt negotiation could be thedifference between a successful loan modification andforeclosure.You will continue to hear pro and con arguments regarding debtnegotiations. One thing to keep in mind is that credit counselorshave been and still are backed by credit card issuers. Whenlistening or hearing about debt negotiations, always consider thesource. If you are contemplating a debt negotiation, be sure toconduct some due diligence before selecting a firm to act on yourbehalf. Visit the firm and ask enough questions to get comfortablewith the partnership. Insist on a law firm experienced in debtnegotiations and, if applicable, home loan modifications. Gettingback on your feet will take partnering with the right firm and acommitment to seeing the process through to its completion. Takecare of those issues, and you’re on your way to financialfreedom.USADebtSettlement.org has debt settlement programs thatwill reduce your credit card balances. USA Debt Settlementspecializesin Bankruptcy debt settlement, Debt negotiation services, Debtnegotiation firms, Debt settlementservices.

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