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What Is Debt Negotiation The following is not financial, bankruptcy, legal or tax or any other type of advice or counseling. Please contact a professional in the appropriate field to review your SPECIFIC situation. You've no doubt been hearing commercials recently claiming to "reduce your debts" and "avoid bankruptcy" on the radio and T.V.. There are a ton of ads on the Internet as well, but nobody will explain it to you. What's it all about? Is it legitimate, a scam, or are the benefits simply being exaggerated? Let us be the ones to give you an honest description of the pros and cons of debt settlement. Overview of Debt Negotiation: Typically if a consumer files for bankruptcy unsecured creditors stand a good chance of never recovering the money due to them and you the consumer ruin your credit for the next 10 years or more. If you have a legitimate financial hardship and are facing the real possibility of having to file for bankruptcy creditors would much rather negotiate with you to reduce your debts so that they can be paid off and cleared for good. You may have heard of claims of 70-80% debt reductions, you may even know people who have had their debt settled at 10% of what they owe. This is possible, but not ordinary. The Debt Settlement industry averages a 50% debt reduction, plus fees and that is what you should expect. The economic down turn has millions of consumers struggling with debt and facing bankruptcy. Creditors are very hesitant to go to court and attempt to sue a million consumers. It's simply not cost effective. In addition they have received some incentives from the Government bailouts which can allow them to offer steep reductions to consumers. Right now while the economy creditors very motivated to reduce and settle your debts. BUT only in the case of a legitimate financial hardship. Why is a financial hardship so important? Creditors are only willing to reduce your debts if they are honestly convinced that you have no ability to pay them in full. By demonstrating you have a real financial hardship you will be able to compel the creditor to negotiate with you. Be sure that if and when you speak with a debt negotiation service that you clearly communicate your financial hardship. The sign of a good negotiation company is that they will be asking you a lot of questions about this hardship to make sure it is compelling enough to ask for a negotiation with your creditors. Part of the free consultations offered on Chapter 7 11 13 is to determine exactly that, if your debts and hardship are appropriate for a negotiation. Can I settle my own debts? First, services have negotiation experts who have established lines of communication with the creditor's negotiation team. You will likely never get past a customer service manager who's main goal is to get you to pay, not to negotiate with you. Also know that many times your debt is not with the original creditor, it is often sold to a collection company. Can you find them? Can you deal with them? Second, negotiation companies are familiar with the legal process and paperwork necessary to process a settlement. They know what is a false offer, a block, or a reasonable offer to negotiate. They should make sure everything is in writing and can also negotiate how the settlement will appear on your credit report. This also requires a solid understanding of the credit scoring system. Third, and most importantly negotiation companies may have financial leverage. They don't always represent just one debt at a time to the creditor. They may pool a number of consumer debts together and present that to the creditor. For example, you call a creditor and say "reduce my $20,000 or I will file bankruptcy" a collection company may challenge you in court or threaten to sue, the debt is too small for them to negotiate. A debt negotiation company on the other hand may come to them and say, "we have 20 consumers with $300,000 in debt they owe you. If they file bankruptcy you may lose all that money, or would you like to negotiate? We have the paperwork, process and track record to demonstrate we can pay according to the negotiated terms." That is powerful leverage that can result in the highest debt reductions possible. Let's look at a debt settlement example: Say you have a credit card debt of $40,000 and your negotiation service charges a service fee of 8%. A service fee is typically calculated on the total debt you want to reduce, BEFORE it is reduced. So the $40,000 debt would carry a $3,200 service fee. Assume the negotiation service is able to reduce your $40,000 debt by 50% this leaves you with $20,000. Add the service fee and your new debt amount is $23,200. That would be a reduction of $16,800 or a net savings of 38%. So you still owe $23,200 that you are not able to pay off correct? This is why debt settlement programs last between 12-36 months. The consumer needs time to save up enough money to negotiate and pay off the reduced debt amount. The debt negotiation company will work with you to create a monthly savings plan that meets your budget to save up the necessary funds. In general the monthly savings is saved BY YOU, IN YOUR ACCOUNT, not with the service provider. Your monthly savings goal usually equals about half of what you currently pay each month for your debts. In other words, if you pay $800/month on the credit card bill, you may only have to save about $400/month to pay it off. Logically, the more you can save each month, the sooner you can pay off the reduced debt. Another important aspect to understand, is that you may have a number of creditors to negotiate with. This means that you would only have to save up about half of ONE of the debts to start the negotiation process. When that debt is paid off the negotiation service will target the next debt and so on. The Cons of Debt Settlement: Starting up with a debt settlement service does not guarantee that you can't be taken to court. If legal action is threatened your settlement team could and should contact the creditor immediately and settle the debt before it goes to court. While you are in a debt settlement program interest and any late or over the limit fees on credit cards could continue to accrue until the settlement is accepted and completed. Debt Settlement only works with Unsecured debts. You can't use debt settlement to solve home loans, auto loans, boat loans, student loans or pay day cash advance loans. Pros of Debt Settlement:
Debt Negotiation Programs CAN work for consumers or businesses:
Debt Negotiation Programs are NOT for consumers or businesses:
A Free Service to See if Your Debts and Hardship Qualify for a Reduction. Use our free service to get a free consultation from approved and reputable debt negotiation services by using the request form below. A professional debt negotiator will answer all your questions and give you estimates on debt reduction amounts and your be debt free date. You will also get estimates on costs associated with their service. This evaluation and consultation is absolutely free. It only takes a few minutes to conduct your evaluation and produce your estimates, however you can spend as much time as you wish getting all your questions answered. If at the end of this consultation you are comfortable with the service and debt reduction amount you can start right away, most companies can get everything started online. If you feel this is not the right solution for you, you have absolutely no obligation or cost. Simply thank your counselor and say goodbye. It's that simple to find out if you can avoid bankruptcy and reduce your debts.
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