If you’re unable to pay your debts on time or fully, it’s a good idea to think about your options. While this can be scary, there are a lot of options to consider. One of the most popular solutions is debt negotiation. If you’re thinking about debt negotiation, it’s not always clear just what’s involved.
In simple terms, debt negotiation can be a great option if you’re no longer able to meet your current repayment schedule. In fact, many creditors are willing to negotiate with you as it’s generally to their advantage as well. Because your lender wants to get their money back as soon as possible, debt negotiation is a good arrangement for both you and your lender.
Still, it’s normal to be confused about this process. What happens when you enter a debt negotiation? Who’s involved? And do you need a professional to guide this process? Keep reading for no-nonsense answers to all of your debt negotiation questions below.
What Is a Debt Negotiation?
First, let’s start with a definition. Debt negotiation is simply the process of negotiating your debts with your creditors with the goal of coming to a mutually beneficial agreement. You can either do this on your own behalf or engage the services of a professional debt services company like Debt Busters.
When you negotiate with your lender, you agree on an amount you can afford to pay or a new payment arrangement. Your final agreement is generally less than the original amount owed. It can be in the form of a lump-sum payment or a series of weekly, fortnightly, or monthly payments. If this is accepted by the lender, your debt is considered settled as long as the terms are met.
Types of debt negotiation include:
- Time: If you need additional time to pay your debt, many lenders can accommodate this usually for a short-term period.
- Reduced payment: Sometimes it’s not possible to pay the full debt as a lump sum, but you might be able to offer a lump sum reduced payment. Many lenders accept this as a sign of good intentions.
- Hardship: If you’re experiencing financial hardship, many creditors have options to reduce your ongoing payments.
- Waived: Though less common, if you can prove you’re unable to pay the debt anytime in the future, you can ask for it to be waived.
The type of debt negotiation depends on your situation, how much you owe, your account standing, and your lender. It’s always worth asking about your options.
Will Lenders Work with me?
Next, it’s normal to be confused about debt negotiation myths and whether or not lenders will be willing to work with you. To put it simply, your creditors would rather get something rather than nothing. Debt negotiation is their chance at getting at least some kind of pay-out.
Keep in mind that the majority of the money that creditors make comes in the form of interest payments. This is mostly profit since your principal amount was most likely paid off ages ago. Negotiating with you is generally a good bet for lenders to reclaim some of what they owe.
Remember, your lenders want to work with you. They want to get their money back. By staying open to potential solutions, they increase their earning potential. When they have to pursue debt through strong actions, this costs them money and time.
How Does a Debt Negotiation Work?
With that in mind, how does a debt negotiation actually work? This process will vary depending on your creditor, but in general, you will need to see first if your creditor is willing to accept a lesser settlement due to your current situation.
You’ll want to be clear on any financial hardships such as a job loss, illness, or any other extenuating circumstances that have affected your ability to repay your debt.
If your creditors are willing, you’ll then begin the process of negotiating with them on the total amount owed. This could be a lump sum payment of what you can afford right now or you may come to an agreement that includes weekly, fortnightly or monthly payments.
Lastly, make sure to get all of this in writing. Include a statement that says once the payment terms have been met you’ll be released from any further obligations. Once you’ve met the terms of your negotiation, you’re free from this debt forever.
Tips for Negotiating Debt
When dealing with creditors, you are dealing with professionals who negotiate debt settlements on a regular basis. You’ll want to be fully aware of your options, your situation, and your rights. Follow these tips below to ensure your negotiation runs smoothly:
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- Professional negotiator: When you use the services of a professional debt negotiator, they often have established relationships with creditors. This means they can usually get you a better deal because they understand how creditors work, and they can deal directly with creditors on your behalf.
- Act fast: It’s best not to wait until your debt is already overdue to take action. Contact your lender as soon as possible. They’ll be more likely to work with you if your account is in good standing.
- Hardship: Always ask about temporary hardship options. If your credit provider is under consumer credit laws, ask for a formal credit hardship variation.
- Budget: Consider how much you can afford to pay before you talk to your lender. Knowing your situation and budget beforehand will keep you on track.
- Logic: Though it’s sometimes difficult, try to keep emotions out of your negotiation. This is why it’s important to work with a professional who is less biased.
Once the creditor accepts the agreement, you’ll simply begin making payments. Though it’s helpful to do this with a professional on your side, it’s more important that you take action as soon as you can.
Is Debt Negotiation Right for You?
Ultimately, if you’re having a hard time repaying your debts, then debt negotiation may be a good option for you. Most creditors are willing to come to an arrangement that allows them to still get a portion of what they’re owed.
However, it’s important to take action sooner rather than later. You don’t want to face late payments or even a court order.