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Facts To Know And Guide To Follow During Negotiation For Debt Settlement

Debt settlement

Debt settlement is the most common form of debt relief that borrowers seek thinking that it will reduce their stress just as it reduces the actual amount outstanding. However, things can appear to be entirely different when viewed deeply. Debt settlement will affect your credit score in a negative way along with other consequences.

However, if you still want to go ahead with it, there are a few things that you should remember. Firstly, come prepared with a proper plan and be prepared for not being offered as expected. Most importantly, you should follow a specific guide for negotiation when you meet your creditors to ensure that the situation does not turn out to be worse.

Start confidently

Believe in the fact that everything in business is negotiable and money lending is truly a business because the lenders earn business profits is the form of the interest you pay on the loan your take out. Therefore, be confident even if you know that the terms and conditions and the price of your loan is set in stone.

Your confidence will play a significant role in negotiating with your creditors successfully.
  • You will find that getting a discount is not as difficult as you may have thought.
  • All you have to do is know whom to ask for it and how to ask for it. It is only then you will be able to cut your balances by 50 or even 70%.

The basics of debt settlement

Now that you are confident, you must know the process of negotiation with your creditor, starting from the basics.

Ideally, debt settlement is the process of PA debt relief in which a large and usually a one-time payment are offered toward an existing debt balance. The amount reduced by the creditor is considered to be an act of forgiveness. The account is then erased from the records. However, this has some serious consequences.

The fact that a portion of your amount is forgiven by the creditor will be considered as your income and the IRS will have all the right to impose tax on such an ‘income.’

Moreover, the fact that you settled your loan account for less will be reported by the creditor to the credit reporting companies and will remain in your credit history for as long as seven years.

Now you may think why in the name of God a credit card company and any lender will willingly choose to relinquish a considerable portion of the balance that you owe to them. Well, this is usually because:

They are either strapped for cash themselves or is afraid that your inability to pay off the entire amount may result in a loss of the entire amount.

In both the situations the creditor will try to protect their financial bottom line which is a key factor that you should remember when you start negotiating.

In addition to that you must also remember that in case of unsecured loans such as credit cards, there is no collateral as these are all unsecured loans. That means the credit card company or the debt collector has nothing that belongs to you that they can hold back and make you repay the loan. It means you stand a higher chance to win and take the negotiation in the way you like.

Know the downsides

It may sound too good to settle your balance for a lower amount but it may not be possible sometimes.
  • It is not surprising that most lenders do not want to settle or advertise debt settlement. It is actually a loss to their business.
  • Moreover, there is no definite and independent statistics that reveals its rate of success.
However, if you are severely behind on your loan payments and the interests and fees may seem to be spiraling toward bankruptcy, chances are that your creditor will be interested to take what it is getting. This will provide you with an opportunity to get your feet back on the ground.

A few other serious advantages of a debt settlement are that:

  • It will shrink your current debt load
  • It will make things easier for you and
  • It will reduce the stress on you.

However, there are a few substantial shortfalls of debt settlement that you will need to consider before you start your negotiation. If you fail to take these downsides into account it will not only reduce the chances of success for your negotiation but will also make the situation more stressful.

In addition to that, you will also need to have a substantial amount of cash in your hand as a debt settlement will generally require you to pay a large sum at one time. This is the primary factor that debt settlement is so attractive to your creditors, in case you are facing financial hardships to continue making payments every month. They will get much larger payments right now instead of you making minimum monthly payments for the next couple of years.

Lastly, you must leave behind the thought that you could have used this amount in a different way more productively in your personal finance and make sure that making such a large payment will not leave you in a tight spot for the next few months down the road. Also, be prepared as your credit card account will be closed completely once the settlement is complete.

How to negotiate

If you are okay with these then go ahead with the process. You can take help of professional negotiators, provided the creditor is willing to do so.
  • While negotiating start with projecting that you really are in a bad financial position. However, do not resort to anything untrue or misrepresent facts because the creditors are well aware of such tactics. They will compare your card statements for the last few months to find out any extravagance and will summarily deny any settlement.
  • Make an offer that is 30% of your outstanding balance and gradually move up as the creditor tends to come down from its original stance of 100% payment.
When you reach a final agreement, make sure you get everything in writing.

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