Debt negotiation is a procedure in which the lender “negotiated down” the amount of debt you owe through either a full or partial repayment. It could also extend to situations where all the debt outstanding (all accounts) are settled, although this will only happen once an account is successfully negotiated down.
A settlement negotiated by a mediator would have you repaying a portion of the debt, generally less than the initial balance. It may be possible to stop making payment or installments on a monthly basis until the account has been settled. This will depend on the financial condition of your situation.
What’s the process for Debt negotiation?
Every lender has distinct procedures for negotiating down consumer debt. You would normally contact the lender via telephone to discuss your financial situation. They may want to see evidence in writing that supports your position as a buyer who is not able to pay the debt in the full amount.
After you’ve explained the circumstances to the lender, they may be willing to negotiate some sort of repayment plan that is lower than the amount owed. Even if you reach an agreement, you’ll need to make payments towards the amount owed.
Sometimes, a debt-negotiating professional could have to reach out to creditors on your behalf. This would only be necessary in the event that you are not permitted to speak to a customer service representative by phone, for instance.
Once your debt has been reduced to a fraction of the amount due, you would then typically have between 36 and 48 months to pay. There is a possibility to settle all accounts in shorter amounts of time, depending on the case.
What kinds of debts are able to be settled?
In general, consumer debt can be resolved with a creditor or lender. A majority of the types of debts that are paid back over time, such as personal loans, student loans and lines credit, can be negotiated by the correct contact in your lender’s office.
A different issue entirely is business debts. If you have a loan with a company or an owner of a business that you are sub-contracting for services, the chances of negotiating the debt extremely slim.
Remember that lenders might not offer the option of a repayment plan for your debts if you’ve been late on your payments or you are in collection.
For more information, click debt agreement vs bankruptcy
What are the advantages of borrowing?
Debt negotiation offers many advantages. Based on the lender you choose, you may be able to get your entire debt amount erased or just a percentage of the total outstanding balance repaid. This could provide some relief to your cash flow until you have completed your repayment plan.
Debt negotiation may be able to extend a period in which no payments on a monthly basis are needed. This is a viable option if you’re unable to make regular payments or want for more time to arrange your finances.
In some instances the debt negotiation process may be your only option when you are facing bankruptcy or wage garnishment.
Being aware that debt negotiation may negatively affect your credit score in the short-term is essential as it can be reported to creditors as the result of a default. Your lender can sell your debt to collection agencies, or refer you for legal action in the event that the agreement cannot be reached.