Debt negotiation can be a good path to debt relief as it represents the only way to get debts reduced. Some people have negotiated their debts down to as little as forty or even fifty cents on the dollar. Professional debt negotiation companies can often do as well or better although they do charge for their services. This means you would save less than if you were to handle the negotiations yourself.

Of course, before you jump into debt negotiation it’s important to understand what it’s all about. So, can you correctly answer at least five of the following six questions?

1. Which debts can be negotiated?

A. Auto loans
B. Credit card debts
C. Federal student loan debts

2. DIY debt negotiation requires:

A. The cash required to make lump-sum payments
B. Strong negotiating skills
C. The ability to make your minimum payments

3. How much does DIY debt settlement cost?

A.Usually about $1000
B. Nothing
C. A flat fee of $500

4. I would be a good candidate for debt negotiation because:

A. I have $20,000 in credit card debt
B. A high credit score
C. I can’t even make my minimum payments

5. A reputable debt negotiation company will never:

A. Charge an upfront fee
B. Contact you first
C. Fail to provide an estimate of about how much money you will save

6. Debt negotiation and your credit:

A. Debt negotiation will have little or no effect on my credit
B. Debt negotiation will have a positive effect on my credit
C. Debt negotiation will have a negative effect on my credit

The answers

1. Which of these debts can be negotiated?

The answer to this is B. Credit card debts can be negotiated because they are unsecured debts. Auto loans are secured debts and can’t be negotiated. While federal student loan debts are unsecured debts, they cannot be negotiated due to federal law.

2. DIY debt negotiation requires:

Both A. and B. are correct. If you choose DIY debt negotiation, you’ll need to be able to offer lump sum payments to settle your debts. Otherwise, lenders won’t negotiate with you. Strong negotiating skills are also required in DIY debt negotiation because your opponents will be skilled and tough negotiators.

3. How much does DIY debt negotiation cost?

If you answered C or Nothing, go to the head of the class. Negotiating your own settlements doesn’t cost anything because you do all the work. You will need to contact each of your lenders, find someone with the authority to negotiate with you, and then make your initial offer. It’s unlikely it will be accepted so you can expect a lot of back-and-forth before you arrive at a number that’s acceptable to both you and the lender. In short, DIY debt negotiation can be complicated and time-consuming.

4. I would be a good candidate for debt negotiation because:

The answer to this question is C — that you can’t make even your minimum payments. The fact that you owe $20,000 in credit card debt doesn’t make any difference if you can make the minimum payments. And mortgage payments can’t be negotiated.

5. A reputable debt negotiation company will never:

This one is a little tricky because the answer is all of the above. No reputable debt negotiation company will ask you to pay an upfront fee, nor will it contact you first by – or email. In fact, the FTC has made upfront fees illegal. A trustworthy debt negotiation company will provide you with an estimate of roughly how much money it can save you, as well as how long it will take to settle your debts.

6. Debt negotiation and your credit:

Did you answer C, that debt negotiation will have a negative effect on your credit? Then, you are correct. Debt negotiation will negatively impact your credit two ways. First, it will drop your credit score dramatically. Second, if your lenders report your debts to the credit bureaus as settled, they will stay on your credit reports for seven years. Lenders will see you failed to pay back your debts in full and will be less likely to grant you credit.

In conclusion

Were you able to correctly answer at least five of these six questions? Then, debt negotiation could be for you. But if you were unable to answer most of them correctly, you need to do some homework before choosing this option. If not, you might end up in more trouble than before you chose it.