Negotiating Debt Settlements – Things You Need to Know

Here’s a question for you: Do you wish you had more debt than you do now, or less? I’m going to go out on a limb and guess that you said “less.” Am I right?

It is only common sense that the higher your debt is, the more likely you are to have trouble with it. If your debt is currently higher than you would like, one of your options for lowering it is to negotiate a debt settlement.

Let me tell you right up front, however, that negotiating debt settlements is not one of the easiest tasks you will ever undertake. In fact, it’s really quite difficult. You will need to contact the collections department for each of your credit cards and attempt to talk them into accepting less than what you actually owe on your account. And if that sounds like an unpleasant thing to do, just imagine doing it over and over again, for each account you need to settle. However, losing everything of value that you own, destroying your credit rating, and declaring bankruptcy isn’t exactly a walk in the park either. So, even though it’s a difficult and scary thing to do, it’s far better to contact your creditors and attempt to negotiate than it is to just cross your fingers and hope for the best… ’cause the “best” just won’t happen on its own.

Let’s stop for a moment and define exactly what it is we are talking about. A debt settlement is not simply lowering the interest rate on your loan. It’s also not a consolidation, where you lump all your outstanding balances together so that you only make one smaller and more affordable payment over a longer length of time. While both of those alternatives may be viable options for some people, a debt settlement involves actually reducing the total amount you owe. The credit card company simply writes it off, and agrees to accept a smaller sum — in many cases MUCH smaller — as payment in full on your account.

Here’s one more thing you need to be aware of when negotiating debt settlements: once you come to an agreement with the credit card company, the amount you’ve agreed to pay to settle your account is due in full. That means within 30 to 60 days you need to be able to produce a remittance that will completely pay off your account. However, if you’ve done a good job in your negotiations, this amount will be significantly less than what you currently owe — 40% to 65% less! So do the math: if you currently owe $10,000 on your MasterCard account, you could negotiate a settlement for $3,500… saving yourself a whopping $6,500! And that’s just one account. Imagine if you owe more money on several accounts, and are able to successfully negotiate debt settlements on each of them. Wouldn’t that be a significant weight off your shoulders, and well worth the pain of dealing with all those collection departments?

Now be aware that your creditors are not always amenable to accepting settlements, for several reasons. First of all, they are losing money. Yes, they can write it off as a cost of doing business and offset the loss to some extent. But it’s certainly not their preferred way of handling customer accounts. In fact, if they think they can string you along and keep you making small payments, charging you late fees and outrageous interest rates, they would much rather do that. So unless you can convince them that you are on the verge of financial ruin, they will make it impossible for you to settle. However, if you do too good a job and they think there really is a chance you will file for bankruptcy, they may just turn your account over to their legal department immediately, so they have a better chance of being first in line to get whatever money is available from you. So you see, it’s a fine line you need to walk when you try to negotiate debt settlements.

In conclusion, I’d like to point out that the task of negotiating debt settlements is not for the faint of heart. You will need to be very discerning and possessed of excellent bargaining skills in order to get a good outcome. That’s one of the best reasons why, for some people, it makes sense to get help from a neutral third party. There are organizations staffed with people who negotiate credit card settlements for a living. These folks know exactly what they are doing, what each individual credit card company is likely to accept, and can almost always get you a much better deal than you would get on your own.

So if you decide to try it yourself, make sure to do your research and learn as much about the process as you can. But also realize that there may be a big advantage in getting a professional involved right from the start, in order to save as much money as you possibly can.

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