Few people realize that they do not necessarily need to borrow in order to pay out unaffordable unsecured debt. While taking on a debt consolidation loan may be an option, frequently for financially stressed borrowers qualifying for such a debt solution can be almost impossible. There is a better way. You may be able to reduce your debt obligations without borrowing or taking on a debt agreement.
What is debt negotiation?
Debt negotiation is a process by which your unsecured debts are negotiated with your creditors in order o reduce either debt balance or repayments or both. While most people will use a professional debt negotiation company, some individuals try to negotiate their own debts. The idea behind this arrangement is that you may agree that a creditor will accept lets say 50 cents on the dollar of their debt if the debt is paid out withing 3 months in full.
Sometimes they will agree to a reduced balance and reduced periodic payments if you the borrower agree to continue making repayments.
Why would creditors enter negotiation?
Many borrowers can not understand why a creditor would agree to discount their debt. After all the debt is genuine and they have legal rights to chase its payment. The truth is that non-payment by borrowers costs lenders a lot of money. If they take on the services of a debt collector this is a cost. Furthermore if you decide that you would rather declare bankruptcy than struggle then the creditor risks getting no payment at all. Most creditors understand that it is better to collect some of the debt than none at all.
That is why it is much more difficult to negotiate secured debts. Lenders have security over your house or car and can sell these items if you stop paying. Even if you decide to declare bankruptcy, their rights against you are not affected if the debt is secured.
What does this service cost?
Dent negotiation companies will generally charge you a percentage of the negotiated savings that they achieve. The more you save the more they earn. Naturally if you decide to negotiate on your own behalf the cost is nothing at all. However you do need to understand the risks. If due process is not followed you may find yourself being bankrupted by others.
What are the risks?
Generally speaking if you approach a company to negotiate debts on your behalf, you need to demonstrate that you are unable to repay current debts. A difficult creditor may decide that this is an admission that you are insolvent and push you into bankruptcy.
Even if this is not a risk that you are concerned with as bankruptcy is a real possibility if you are unable to pay your debts, you may also find that your credit history could be affected adversely while you are in discussions. Only borrowers who continue making all set repayments while negotiating debts may retain a clean credit history despite entering the debt negotiation process.
Benefits
The benefits of a timely debt negotiations are huge. If you do so before falling behind with your repayments you stand a good chance of reducing unsecured debt while retaining a clean credit history and avoiding bankruptcy.