What You Must Know Before Attepting Debt Negotiation
Debt negotiation should be viewed as a last-resort measure
before filing bankruptcy. A lender has little motivation to
accept a pay off for less than the full amount unless the debtor
is already months behind on bills. Debt negotiation, also
sometimes called debt settlement or debt arbitration, is best
reserved for use when debt is seriously delinquent. If you're
considering debt negotiation, it's important to be informed
about all the options available to help you deal with your debt.
Contact your creditors, negotiate payment arrangements, ask
permission to skip a payment, or ask for a lower interest rate.
These are simple measures you can take as a first step to manage
your debt. Try these options first before you attempt any other
course of action.
If you have a large amount of debt, a qualified credit
counseling service may be able to help you reduce payments and
prevent further damage to your credit report. Although credit
counseling can provide consumers with valuable assistance, some
firms exist only to cheat their unknowing clients. These
companies use their non-profit status to attract customers who
are then scamed into paying large upfront fees. Those fees are
then sometimes funneled to for-profit companies. Recently, the
FTC and IRS issued the following tips for choosing a credit
counseling organization.
* Pay very careful attention to the fees you are being charged,
the nature of the services the agency offers, and the terms of
the contract. * Check to make sure that your creditors are
willing to work with the agency the you plan to choose *
Consider using agencies that offer actual counseling and
education, instead of simply enrolling all clients in a debt
management program
Another option for consumers overwhelmed by debt is to
consolidate debt by establishing a new loan (debt consolidation
loan) with lower monthly payments. A debt consolidation loan
helps manage your debt because the loan is usually over a longer
period of time and possibly at a lower interest rate than your
existing debt. Consolidation should be used when debts are
mostly current.
While there are many options to help you cope with unmanageable
debt, sometimes debt negotiation may be the only appropriate
course of action remaining. For example, debt negotiation would
be a good course of action if a long-forgotten debt is the only
bad entry on your credit report. However, keep in mind, you may
owe income tax on the debt owed.