Maybe you’ve read about debt negotiation and think of the idea of cutting the debt you owe in half instantly as an amazing concept. Whether you approach your creditors through a company like Freedom Debt Relief or on your own, you need to know when and how to approach them through debt negotiations.
When Creditors Respond to Negotiations
Creditors don’t offer to reduce debt or respond favorably to debt negotiations when an individual keeps their account current. They save making these offers and acceptance of consumer-suggested offers, for debtors who fall behind on payments. Debt negotiations represent their last-ditch way of getting something of what you owe back. If you make timely payments and keep your account current, this option isn’t for you.
How It Works
According to Forbes, you have to have money saved up to use debt negotiations. When you negotiate for a lower bill or the credit card company sends you a negotiation offer, you must respond to it immediately and pay then, too. Let’s say, for example, you phone the creditor for your major credit card and successfully negotiate a 50% reduction, from $4,000 owed to $2,000 owed. You need to pay that $2,000 immediately. The credit card company may ask for your bank account information or debit card number and charge it. If you don’t have the extra money saved, negotiations won’t work.
What About Credit Counseling?
Debt negotiations through credit counseling non-profits like Care One Credit differ from the programs operated by financial corporations like Freedom Debt Relief. Both offer credit counseling and debt negotiation, but the way the programs operate differs.
Non-profit Counseling and Debt Negotiations
When you register for the non-profit programs, you agree to shut down every credit card you own. You must register each account in the program, and the non-profit handles the debt negotiations for you. Through this mandate and standing agreements with credit card companies, the non-profits obtain reductions of the debt owed. You also can’t apply for new credit cards or loans until you pay off the current cards and loans. When you leave the program, you can apply for a new credit card.
Corporate Counseling and Debt Negotiations
The credit counseling offered by financial corporations puts debt negotiation in your hands. Providing you with a script to follow, the corporate credit counselor helps you get ready to contact each credit card company on your own. You choose which creditors to approach and which to keep. The only credit cards you shut down, you choose to do so.
Either way, once you negotiate a lower credit bill and pay it, you’ve closed that credit card. The creditor reports your payment to the credit bureaus and notes that it accepted a settlement. The record of this payment and settlement remains on your credit report for seven years.
Getting Started with Debt Negotiations
Consider debt negotiations if you already fell behind in payments or think you may need to file bankruptcy to pay off your debts. Save a few hundred dollars or more, register with a credit counseling program, and then approach your largest creditor. If you’re keeping up with your payments and just need a smaller monthly payment, consider other options.
