Debt Negotiation & Repair

When debt becomes unmanageable, many people seek out ways to reduce or settle their outstanding debt. There is a lot of information on debt negotiation or settlement, but much of the information is not reliable. It is important to do thorough research on methods you may be interested in pursuing. In addition, it is necessary to get tips and advice on what approach to debt negotiation is right for you and your particular situation.

Identification

The goal of debt negotiation is to lower the amount of outstanding debt owed, decrease interest rates on outstanding debt and/or reduce the length of time left on payments. There are services and/or companies available to assist you with debt negotiation or you can negotiate on your own behalf. Some nonprofit credit counseling agencies can assist you with debt negotiation by either providing useful negotiation strategies or contacting creditors on your behalf. For-profit companies or services handle the total negotiation process with creditors. However, many may not be as reputable as they claim to be.

Contact Creditors Yourself

The cheapest way to handle debt negotiation is to do it yourself. However, the process can be time-consuming. In addition, you must be persistent and organized. First, you need to determine the extent of your outstanding debt. Also, you should take inventory of your finances to see if there are any expenses that can be cut and how much available income is available to contribute to debt payments. Next, you need to contact all your creditors to come up with a payment plan. The negotiation may involve an interest rate reduction, reduction in the balance owed or deferred payments for a set period. For the best results, it is important to arrange a payment plan with all your creditors, as you are able to.

Debt Management Plan

Credit counseling companies, operating on a non-profit basis, often offer Debt Management Plans (DMPs). With a DMP, you usually make one payment to the agency, which in turn pays your creditors. Credit counseling companies that use DMPs often work with your creditors to reduce the interest rate on your outstanding debts. As a result, more of the money you pay goes to paying down the actual debt instead of the interest. It is a common misconception that non-profit equates to free; however, there is usually a fee charged for this service.

Debt Settlement Plan

Debt settlement is usually a more aggressive strategy to debt reduction that may prove useful to many consumers. Debt settlement often involves reducing the principal of the debt and not just the interest rates as with the debt management plans. In addition, debt settlement companies charge you a fee to handle the debt negotiation with your creditors. The fee is generally significant, so it is important to make sure you are dealing with a reputable company. All things being equal, debt settlement can result in a quicker reduction of debt vs. debt management plans because debt settlement often involves a reduction in the overall principal owed.

Warnings/Tips

When considering a debt negotiation solution, it is imperative that you do your research. There are many companies, profit and non-profit alike, that charge hefty fees and make claims they can't support and promises they don't keep. They may leave you in a worse position than when you started. Look for consumer reviews to find reputable services and companies. In addition, check the Better Business Bureau to see if the company has unresolved complaints.