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The Pros and Cons of Debt Negotiation

Initially getting rid of all your debt by debt negotiation can look really great. But before you make your decision you need to understand the positives and negatives of the process of negotiating the credit card debt.

Several third party debt settlement companies will do the debt negotiation for you. The first step in their process is to have you stop paying on your debt. Instead they will have you make those same payments (or whatever amount you can afford that they have worked out with you) into a trust account for accumulation. Once the balance in that account has reached at least 25 to 50 percent of your debt owed they will begin the negotiation. Once a settlement is reached (typically much less than you initially owed) the settlement company will pay your creditors one payment in full.

There are a few benefits to debt negotiation, the biggest and most obvious being that you don’t have to pay as much back as you owe, but these and other benefits are different for everyone. You must be at least 3 months behind in order for a creditor to even consider debt negotiation with you. You credit will take a hit for the debt forgiveness. And you will have to pay taxes on the forgiven amount. But if you are considering bankruptcy as the other option, this is by far the better choice as it doesn’t trail you your whole life & the ding on your credit won’t be as bad. One other benefit of debt negotiation is that if you use a company to do it for you, you can turn all your collector calls to them because they are working on your behalf and that can reduce the stress for you.

Debt negotiation has a downside. First, it costs a lot to hire a company to do the work for you. The going rate is about 20% of the debt you are forgiven. So if you owe $10,000 and are forgiven $5,000 you will have to pay the company $1,000 to negotiate the debt for you, and sometimes they want a portion of it up front. If you do it yourself, you will have to take a lot of time and keep your head on straight and don’t let your emotions get in the way. Second, you have to stop making payments to your creditor which will make them mad so you may start getting some nasty phone calls. Third, you will owe taxes on the forgiven amount. And last, it will damage your credit some.

Determining whether or not debt negotiation is right for you is a weighty matter. Do not take it lightly. These tips will help you in your consideration, but you should do more study before making your decision.

This is negotiating credit card debt a good idea. How to make the most of a terrible situation.

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