Debt negotiation is a process in which the lender “negotiated down” the amount of debt you owe through partial or full repayment. It is also possible to extend it to situations where all the debt outstanding (all accounts) are paid off, however it is only possible after an account has been successfully bargained down.
A negotiated settlement would require you to repay some of the debt, usually less than the initial balance. It could be possible to stop paying any monthly repayments or payments until the account has been settled. This depends on the financial condition of your situation.
What’s the process for the negotiation of debt?
In the case of consumer debt every lender has an individual procedure to negotiate down their account(s). In most cases, you’ll have to contact the lender by phone and negotiate with them after they understand the financial circumstances. They may want to see evidence in writing that supports your position as a buyer who isn’t able to pay the debt in the full amount.
After you have explained your situation to your lender, they might agree to come up with an arrangement for repayment that is less than the debt amount. Be aware that you’ll need to pay some amount to the debt until completely paid back, even if a negotiated settlement can be reached.
In certain situations an expert in debt negotiation may be required to call the creditors directly on behalf of you. If you’re not able to speak to customer service representatives via phone in this case, it would be required.
When your debt has been reduced to a fraction of the balance due, you will be left with 36 or 48 months to repay. It is possible to settle all debts within shorter amounts of time depending on the situation.
What kinds of debts are possible to deal with?
In general, consumer debt can be discussed by a creditor or a lender. Many types of debt which can be repaid in time, such as personal loans, credit card debt, student loans and lines of credit can be negotiated with the right contact at the lender’s office.
The business debts are an entirely different matter completely. If you have a loan to a business owner to whom you are subcontracting services, the chances of negotiating that debt very slim.
It is important to remember that some lenders may not be willing to discuss an arrangement for repayment of your debt, particularly in the event that you’ve defaulted on a few payments or if the account is in collections.
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What are the benefits of debt negotiation?
Debt negotiation has many benefits. It is possible to forgive your entire debt balance or a portion of it according to the lender you deal with. This may offer some cash flow relief for you until the repayment plan is completed.
Debt negotiation may be able to extend a period of time during which no monthly payment is required. This can be beneficial if are unable to make larger monthly installments and want longer time to get your finances back in order.
In some cases you may find that debt negotiation is the only solution if you’re facing bankruptcy or wage garnishment.
Noting that debt negotiation can negatively impact your credit score in the short-term is important as it will be considered the result of a default. Depending on the lender the debt might be sold to collection companies or be referred to legal action if you are unable to pay the debt after an agreement has been reached.