How Does Debt Negotiation Work?

Mounting Debt

In troubled economic times, paying off a credit card with a high interest rate can seem nearly impossible. The same goes for small personal loans. Debt can become harder to manage as the costs of basic necessities (such as gas and food) rise at astronomical rates. Even if the rest of the world is facing economic downturn, no one wants to take on mounting debt and possibly face bankruptcy. Yet one way to avoid this is through debt negotiation. This article will explore how debt negotiation works and how it can save you money each month.

Debt Negotiation=Lower Interest

Whenever you decide to take on debt--be it a credit card or personal loan--there is usually an interest rate attached to it. Much of the United States economy runs off of this system. Hardly anyone ever loans money without making some money off of it. If your credit card interest rate is 19.9%, you can expect to be charged 19.9% of that card's balance every year. As long as your card's balance is above zero dollars by the end of the month, you will be paying interest on it. Usually there is a minimum payment that you have to make or you could face stiffer interest penalties on the card. That minimum payment could keep you afloat, but usually you end up owing even more in the long run. And that's how the debt mounts.

However, you can actually pay down this debt faster by talking to the credit card company or hiring a service to do it. If you do it alone, you may be able to reduce the interest rate by a few points. But Debt negotiators can talk to a credit card company and actually get them to lower your interest rate to something much more manageable, like maybe 10%. Credit card companies actually, by and large, will cooperate because they are still making money off of you versus you defaulting all together. This keeps you out of bankruptcy and them out of taking a loss. In some cases, debt negotiation can lead to a pay off amount that settles the entire bill.

Debt Negotiation Comes With A Price

Debt negotiation can definitely save you on your outgoing debt, but in some cases it can put a "mark" on your credit report, should you try to get future credit. For instance, cards settled through a negotiator can show up on your credit report as such. Even if you never missed a payment in the first place, a company's underwriter may feel like you won't make your payments on time and refuse you credit just because the word "consolidated" or "debt program" is marked on the credit report. Although this is not a bankruptcy, negotiation doesn't come without a price for at least seven years. Take this into consideration before going into a debt negotiation program. Also, not all debt negotiation companies are upfront about this. Some may even claim they can completely wipe out your debt. This is simply not true except in the case of bankruptcy. Consider the reputation before diving in.