The number of people struggling with high interest
credit card debt continues to
grow. Once considered a problem reserved for “poor” people, Americans who had
previously been able to pay their debts each month find themselves in a position
where the bills continue to pile up yet the money coming in has been reduced or
in some cases totally eliminated. Fortunately there are several options
available for consumers trying to stay afloat financially. Determining which
option is right for you will depend greatly on your current and future financial
circumstances. Here we will cover how you can reduce your debt by negotiating
with your creditors. It is important to know, however that reducing debt is
different that reducing interest rates, therefore
debt negotiation should be
considered only for those that are facing a real financial hardship and are
unable to pay their debt in full.
Negotiating Debt With Creditors
The first step before you consider negotiating debt is to understand the process
itself to avoid surprises in the future. You should know that when creditors
accept payment for less than the full balance, your credit will undoubtedly
suffer and you may be taxed on the difference if it exceeds $600 dollars. In
most cases people who are considering settling a debt already have issues with
their credit and the main concern is no longer protecting your credit but rather
the need to get out of debt to start living again, free of debt. Likewise, most
people who negotiated debt are facing a financial situation which would allow
them to avoid tax consequences due to insolvency. The following tips will help
you get started if you feel negotiating your debt is the best route to eliminate
your outstanding debt.
• Determine who has your debt - Before you can negotiate your debt, you must
first know who currently holds your debt. If your debt is still with the
original creditor or if the account has been sold to a debt collection agency
may change your negotiating strategy.
• Begin building settlement funds - In light of the recent economic collapse,
more and more creditors are considering settlement over receiving nothing should
the indebted person file for bankruptcy. While this may increase your chances of
negotiating a successful settlement, you will have to be prepared to pay the
negotiated balance in full or a few monthly payments. Your creditor is already
accepting less the the full amount due, so they will want their money
immediately or in the very near future. Without funds to pay the settlement,
negotiating for a better deal is a moot point.
• Know when to settle - Creditors are more inclined to settle a debt when the
account is past due. If you are experiencing a real financial hardship and are
already behind on your payments you may already have received phone calls or
other correspondence demanding payment. If you attempt to reach a settlement
while your accounts are current you will more than likely be offered a reduced
interest rates or other arrangements to help you get “caught up”. The best
settlements will be reached when you are past due but before the creditor is no
longer willing to wait, which may result in legal action taken against you.
• Document negotiations - Once you begin negotiating with your creditor, it is
imperative that you keep records of all correspondence. Include the date, time,
person you spoke to and any specific offers. After an amount is agreed upon,
insist on getting the offer in writing before making the first or full payment.
This will avoid a situation where you pay the balance agreed upon only to find
the creditor claiming no agreement was made.
Negotiating a settlement on your own is an option for anyone struggling with
debt. It is important to understand the process and risks involved before
negotiations begin. If you feel you are not ready or able to deal with creditors
on your own, take the time to fully investigate and research any third party
companies before enrolling in a debt settlement program. The goal is to get out
debt, not deeper in debt.
Reducing Debt