Surprise! Debt Negotiation Includes a Lot More Then Just Debt Settlement

The term debt negotiation has come to be synonymous in many people’s minds with the term debt settlement. Debt settlement is, of course, where you or a debt settlement firm offers to pay off your debts by making lump sum payments but for less than their balances. It’s become very popular since people discovered it’s how to to get debts reduced instead of just moved around. In fact, it’s become so popular that many of the major lenders can’t handle all the calls they’re getting.

You must have a legitimate financial emergency

As you will read there are other things that can be negotiated with a lender besides a settlement. However, here’s the big caveat. No lender will negotiate anything with you unless you’re having a legitimate financial emergency such as divorce, a serious illness, a death in the family or a prolonged period of unemployment. And you should have the documentation ready to prove your emergency as very few lenders will just take your word for it. This could consist of a divorce decree, a pile of big medical bills or a termination notice. The important thing is to have your ducks in a line before you make that first phone call.

Negotiate your interest rates

As noted above there are other things that can be negotiated besides settlement and, depending on your circumstances, one might even be a better option. While most people don’t know this you could actually negotiate to get your interest rates reduced. Let’s say you owe $4500 on a credit card with an APR of 19% and your minimum payment is 3% of your balance. In this case, it would take you 133 months to pay off the debt and your total cost would be $7,308.66. However, if you could negotiate that interest rate down to 12% and made the same minimum payment you’d have the debt paid off in 110 months and your total cost would be just $5,933.68. Of course, if you were to increase your monthly payment to 5% of your balance, you’d have the debt paid off in just 88 months and your total cost would be $5,586.38.

A lower interest rate can also mean lower monthly payments. So if your goal is to repay your credit card debts then negotiating a reduction in your interest rate could be a very good option.

Negotiate a timeout

The second thing that can be negotiated is to have your payment waived for several months. Going back to the example given above with a minimum monthly payment of $225. If you could negotiate to have your payments waived for three months that would be $675 you could then use to reduce one of your debts. Plus, you’d have three months to reorganize your finances and make a plan for paying off your debts.

Negotiate a temporary reduction

If you do the math and find you’d be helped by a temporary reduction in your monthly payment you could negotiate this. As example of this you might be able to get that minimum monthly payment of $225 negotiated down to $100. Of course, it will take you longer to pay off the debt because you’re making smaller monthly payments.

Negotiate a forbearance

A forbearance is basically the same as negotiating to have your payments waived for a few months — it’s just a different term for it.

Negotiate to have your credit card debt converted into a long-term loan

This is probably one of the least popular things to negotiate because if your lender agrees it’s almost certain that it will close your account. However, if you’re having a tough time making your payments this would be one way to get a lower monthly payment and it would be fixed so you’d know exactly how much you would be required to pay each month. The downside of this is that you’re basically trading money for time. While you would save money with a lower monthly payment the new “loan” will have a much longer term.

Get it in writing

Regardless of what sort of an agreement you’re able to negotiate with a lender make sure you get everything in writing. You will also need to stick to your payment plan. If you run into more trouble with your finances, you’ll need to be sure to contact your lender before you fall behind so you can renegotiate. If you wait until you default on your settlement payments, it’s likely that the lender will have no interest in negotiating with you.