How Do I Do A Debt Negotiation?

Online, March 21, 2012 (Newswire.com) - If you are swimming in deep waters when it comes to your credit card debt and need help, it may seem that bankruptcy is your only answer. But there is another option - debt negotiation.

You may be able to work with your creditors and negotiate a partial settlement or even get them to agree to reduce your payments for a few months. Most creditors will agree to a settlement of some sort, because they know that collecting at least some of the balance due is better than collecting none at all.

But how do you actually do a debt negotiation?

First of all, you have to figure out what kind of settlement will work for you. There are basically four types of debt negotiation: lump sum, workout arrangement, debt management and forbearance.

Lump sum settlement means simply that you contact your creditors and offer a lump sum, paid in full, in order to settle your debt. You may be able to break the sum into three payments. But this will impact your credit score, since it appears as a charge-off.

A workout arrangement means that the creditor will reduce or eradicate your interest rate, and won't charge you any fees. This will likely only be offered until you have caught up on your payments.

If you are unwilling to contact your creditors yourself, you can use a debt management program, which will allow someone else to do your negotiating for you. There may be a fee for this, and your accounts will be closed, which could affect your credit scores.

Forbearance programs give you a break from your payments and are temporary. Although this option does allow you time to get back on your feet, it does nothing to reduce your debt. It will be waiting for you when your return from "vacation."

You should take note that debt negotiation is not an overnight fix - it will take time. It also might mean that things will get worse before they get better. Your credit score could suffer, and there could be tax consequences.

Before you agree to any debt negotiation plan, you should make sure you understand how your settlement will be reported to the three major credit reporting bureaus: Experian, Equifax, and TransUnion.

Whatever route you choose, choose wisely and choose carefully. Don't enter into an agreement just because it seems to be an easy way out. Make sure the path you choose is the one that leaves you in a better state when you reach the end.