Debt negotiation services are basically companies that are able to help renegotiate, settle, or possibly change the agreement of one’s debt to their creditor.
If you critically look at what debt negotiation services offer, you’ll realize that it is basically nothing more than good negotiations. Professional negotiators employ their skills and wiles to haggle with your creditors. You’re certain of getting quality services if you hire experienced professionals to perform the negotiations for you. How successful their track record is would give you a hint into the quality of their services. With them involved, you can pay back just a small portion of your debt.
Debt negotiations are also referred to as settlement and they essentially mean that your creditor is willing to accept an amount less than what you owe. They would no longer bother you for the money which means less worry about getting sued over it. Keep reading to see how it works and if negotiation services can reduce your debt.
How It Works
You need debt negotiation when you’re behind on your loan payments and have even skipped several. The loaner or creditor would not accept anything less than your agreement owes unless there’s a valid reason to believe you are no longer able to pay the amount that was originally agreed upon.
Being unable to pay your debt seriously affects your credit scores and you end up feeling hopeless. You know you’re behind but there’s nothing you can do seeing that your income won’t be enough to pay up what you owe.
Debt negotiation companies negotiate with creditors on your behalf to reduce the money you owe. It is usually done on unsecured debt like your credit cards. There are some types of debt where negotiation or reduction is not an option. A good example is your house that can be foreclosed on or a vehicle that can be repossessed. Also, negotiation services don’t usually settle federal student loans. But on your own, you would be able to settle your student loans. If you’re struggling with your student loans, an income-based repayment plan might help you.
There are settlement companies that claim they can slash your debt by about 50% making you debt-free in 36 months. The truth is that their procedure isn’t all that straightforward and this is not to undermine how important debt negotiation services are. But in any case, hiring their services should be the last resort. Take a look at some of the risks associated with debt.
1. Your credit scores will be affected
If you’re not already behind on your accounts, once you start sending money to the settlement account, you would be once. Delinquent accounts remain visible on your credit report for more than five years.
2. There might be penalties involved.
Your interest would continue to accrue and there’s every chance that you’d be sanctioned with late charges and penalty fees.
3. There’s no guarantee of success
There’s no better way to say this but there is no assurance that some creditors would agree to a negotiation talk less of agreeing. So, while their offer might be very enticing, always keep an open mind.
4. You’d be required to pay additional fees
Apart from the fees you pay after a debt has been settled, there’s every tendency that you’d be asked to pay some other fees. It could be the setup or monthly fee used for the maintenance of the dedicated account setup.
5. Canceled debt may be taxable
If your debt has been forgiven, bear in mind that it would be considered as an income by the Internal Revenue Service. It would be wise to speak with a tax professional concerning any additional tax obligations you’re likely to face once you settle your debt.
Pros and Cons of Debt Negotiation Services
There’s no doubt that a debt negotiation service would help pay off your balance quickly so you can start your recovery as quickly as possible. But you’d need to fall behind on your debt before the creditors would be willing to negotiate on your account. So assuming your credit rating isn’t all that bad, it might be in the short term.
When your debt negotiation is going through, the credit score will rebound. Your debt would have been settled at a very reduced rate. Money is saved money and unnecessary stress is avoided.
So, yes the right negotiation services would reduce the amount of debt you owe but you must also be aware of the risks involved. Be prepared on what next to do if a negotiation doesn’t fall through.