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Debt Negotiation: Understanding Credit Card Debt Negotiation Services
A relatively new industry, some consumers are mystified by the dynamics of debt negotiation. Debt negotiation is the process by which a company negotiates with a credit card company to get them to lower the amount that a consumer owes. A debt negotiation client may be able to reduce their debt by up to 50 percent and become debt free in 12 to 36 months, all while making a substantially lower monthly payment. In order to get a creditor to agree to a settlement of the debt, however, a client must be behind on their payments to the creditors, which may have an adverse effect on your credit. For consumers who owe a lot to credit card companies, it is possible that your credit is already suffering from their debt amount anyway. On top of the credit rating concern, there are several other factors to consider before choosing debt negotiation. The purpose of this article is to break down the different factors that determine the effectiveness of a debt negotiation program. In no way does this article make the point that people are guaranteed successful negotiations if they meet the criteria outlined below. Results do vary, and creditors change their policies continuously, so this may not reflect the current landscape for debt negotiations. Debt negotiation and the Importance of Program Length In any debtor-credit scenario, a creditor is reserved the right to sue a debtor in court if they are not paying according to the terms stipulated. Legal action is usuallya last resort, and creditors typically prefer to settle. On the flip side, however, in some cases, once a creditor feels that they've exhausted every collection method possible, they're left with no other choice but to pursue the debt in court. Therefore, the longer you take to settle a debt, the greater the likelihood that you'll be the target of legal action by your creditors. Since this is the case, all debt negotiation candidates should always try to settle the debt as quickly as possible. As a rule of thumb, being in a debt negotiation program for longer than 3 years is not advisable, although exceptions can be made depending on your state, type of income, etc.The Importance of your Creditors in Debt Negotiation As one should expect, each bank deals with debt negotiation in a different manner than the next. While almost every creditor does in fact settle, some creditors are more antagonistic than the rest. Three in particular stick out as difficult creditors: Citibank, Discover, and MBNA. For one, these creditors' historical settlements tend to be much higher than the rest. Secondly, these creditors are more likely to pursue legal action to collect your debt. The likelihood of legal action is usually reduced dramatically by enrolling in a shorter program, but all in all, it may be possible that seeking the advice of a bankruptcy attorney may be a better alternative if these are your only creditors.Debt Negotiation and the Importance of your Hardship Believe it or not, creditors are human. If your enrollment in a debt negotiation program is the direct result of circumstances that you could not control (divorce, medical issues, job loss) and you can document it, then you're far more likely to get a favorable settlement versus a person who the creditor feels could have paid the debt back in full. If you're buried and unable to afford the minimums or a credit counseling program, but it was more the result of poor budgeting than financial hardship, it's still possible that you'll be able to obtain a settlement. Had you just been diagnosed with brain cancer the settlement in many cases may be a lot more favorable and the negotiations process a whole lot easier. Sympathy still goes far these days.Debt Negotiation and the Importance of your Recent Account Activity This plays into your hardship in a sense because it's all about whether the creditor feels you've been fraudulent in your business with them. For example, if you just bought a plasma TV on your credit card a month ago, I'd think twice about doing debt negotiation. If the creditor doubts that you ever had any intention of paying them back, then the negotiations over your debt are more likely to fail. In the end that means you'll be stuck in court paying back a debt that's even larger than original balance because of the late fees and interest charges that were tacked on during the course of your debt settlement program.Debt Negotiation and the Importance of your Credit History More specifically, if you've filed Chapter 7 Bankruptcy in the past 7 years, you may be out of luck. The main draw of debt negotiation for creditors is that they can recover a substantial portion of a bad debt that otherwise could and/or would be completely wiped out by bankruptcy. Unfortunately, if you've filed bankruptcy in the past 2 years, then you can't file again for another 5 years, so a creditor loses some of the incentive to negotiate a balance. That is, in their mind, they may be saying, "This person can't file bankruptcy anyway. What do I gain by lowering their balance?" That being said, even if you have filed bankruptcy in the past 7 years, a settlement can still be reached in some cases. Why? There are two reasons: a) a lot of times a creditor won't be able to collect the debt from you anyway because you don't have any assets or sufficient income, and b) having 50 percent of the balance in one lump sum is attractive when it means the creditor doesn't have to waste time and money chasing you down. Finally, the longer it's been since you've filed, the stronger your negotiating position may be. In other words, if it's been 6 years since you've last filed, then the time line when you're eligible for bankruptcy again is too short for some creditors to risk potentially losing everything by refusing a settlement. |
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