The most important aspect of any business where money is involved is that everything in it is negotiable. The terms and conditions, price, and business policy may be set in stone, but in most cases, it is not an impossible task to get a discount. All you need to know is who and how you can ask for it. This is the art of negotiation that you should master if you also decide to settle a debt.
If you owe money with your credit cards or other credit, you will be surprised to learn that the ability to negotiate with your creditors is actually as extensive as the amount you owe. You will need a little bit of guts and knowledge, with the help of an appropriate guide to debt settlement negotiations, to reduce your credit balances by half or even more.
A Simple Guide For Debt Settlement Negotiations
Starting with the basics of debt settlement, it is the process of offering your creditor a large and one-time amount for the entire amount owed. In return, the creditor “forgives” the remaining debt. This means that the remaining amount is “waived” or cancelled.
You may now ask yourself why a creditor would willingly be so kind to you and waive the amount that is justified and legally payable by you, especially if it is a substantial part. Well, the main intention behind this step is that the creditor is either facing a financial crisis himself or is afraid that you might not be able to repay the amount due and he will lose the entire amount. Something is better than nothing, they believe.
Moreover, in such situations, the creditor tries to protect its financial bottom line. This is the most important factor you should take into account when you start negotiations with your creditor.
Ideally, there can be two types of loans: secured and unsecured. Loans such as credit cards and others are unsecured if the creditor does not have a pledge for any collateral. On the other hand, secured loans usually have collateral that the creditor or the debt collector can pledge if you are unable to repay your loan.
You must, therefore, follow the process accordingly during negotiations, as it is different for different types of loans.
Always Know the Downsides
If you are struggling to repay your outstanding debts, it is often tempting to pay off your debts, but ideally, it is not a very good option to choose. When you go through the debt repayment review, you will come across a number of incidents where a debtor has been confronted with serious consequences of debt repayment.
Moreover, it is also not good for the lender to have to give up a considerable amount of money that he legally earns and owns. It is therefore not surprising that lenders neither advocate nor promote debt settlement at any price. Moreover, there are no solid statistics and data to support its success rate.
This means that ideally, the decision to settle your debt should be your last straw if you are seriously behind with your bills, as well as those of creditors who fear a total loss. It is essentially an option to get back on your feet when you are slowly but surely moving towards bankruptcy.
Pros and cons of it
Debt settlement is not all bad, as it has some significant advantages, such as:
- It helps you to reduce your current debt burden.
- It helps you to get rid of your burden with a one-time payment
- It allows you to sleep well at night because you are debt-free.
However, it also has some significant drawbacks that you must also take into account. If you don’t do this, you could find yourself in a situation that weighs on you more than before. The disadvantages are:
- You have to pay a considerable amount of cash at once.
- If the debt is a credit card debt, you also have the risk that your account will be closed completely after the settlement.
- It will be reflected in your credit report, which will lower your credit rating and make it difficult for you to get credit for a few years.
However, debt repayment is still favored because:
- The lender immediately receives a large chunk of money and prevents a complete loss of repayments.
- The debtor stops making monthly payments and does not have to worry about money every month.
With all these facts, information and knowledge, you are now confident to meet your creditor for a hearing.
Tips to negotiate
If you are convinced that debt settlement is the right option for you to get rid of your debt and you want to choose it, the next step is to prepare for the negotiation.
- You can choose to hire a professional debt mediator or do it yourself, but remember that the creditor is legally obliged to negotiate with you. This means that a professional negotiator has no additional advantage to get a better deal than any account holder.
- Regardless of whether you want to hire a professional negotiator or not, a useful tip is to present yourself in such a way that it appears that you are really in a bad financial position to make the full payment.
- Justify your position with relevant evidence such as financial and credit card statements from recent months, but make sure that it does not reflect your visits to five-star restaurants or designer boutiques, which will lose the creditor’s sympathy.
- Start the process by calling the customer service department and asking for a contact person. This person should preferably be a manager in the debt settlement department.
- When you talk to the manager, explain your situation by emphasizing the fact that you have provided some cash and want to settle the bill before the money is spent elsewhere.
If possible, mention that you have several accounts to settle in order to get a competitive offer. Follow the rule of thumb and start offering an amount that is almost 30% of the outstanding balance. Go beyond 50% of the outstanding balance at no cost or settle with another creditor. At the end, get everything in writing.
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