Have you seen any of those ads titled, “Get Out of Debt today,” “Get Out of Debt Fast, or “ Debt Relief Now!”?

Those ads probably seemed very inviting. I mean, who wouldn’t want to get out of debt fast?

These ads are promoting a debt consolidation option called debt negotiation or debt settlement. Yes, this can be a way out of debt, but it’s important to know what’s true about it and what isn’t. A lot of half truths and outright lies exist about debt negotiation, and here are five you need to be aware of before choosing it.

1. You can get credit card debts reduced just by asking

This would come under the category of total lie. No credit card company will agree to settle a debt just because you ask. You need to be having a serious financial emergency. What’s a serious financial emergency? It could be that you just went through a divorce and got stuck with all the debts, had an expensive hospital stay, or lost your job. You may be asked to document that emergency, so be prepared with the appropriate paperwork. The thing is credit card companies just don’t want to settle unless there’s a good reason, which would be that serious financial emergency.

2. Debt settlement will not damage my credit score

Here’s another one in the category of outright lies. Debt settlement will definitely damage your credit score – maybe by as many as 80 points. It will also have a long-term effect as those settlements will stay in your credit reports for seven years. Lenders will see you settled your debts instead of paying them off in full and will be less likely to offer you credit. Also, credit will cost you more because you’ll be charged higher interest rates.

3. You have to use a debt settlement company

We would call this one a half truth. Nothing says you have to use a debt settlement company. You could settle your debts yourself. But most people choose not to. Two big reasons for this exist. First, using a debt settlement company eliminates the need to save up enough cash to make the lump sum payments required to settle debts. Second, negotiating with credit card companies is tough and takes a lot of time. It’s just much simpler and easier to let a professional debt settlement company handle the negotiations for you. Plus, it’s almost certain a professional settlement company will negotiate better settlements then you could yourself.

4. It doesn’t cost much to use a debt settlement company

This one falls in kind of a gray area. It’s not a total lie nor is it the total truth. Reputable debt settlement companies usully charge a percentage of the amount of debt being settled. This typically ranges from 15% to 25%. If you owe, say $30,000, you’ll probably be charged the full 25%. This mean yes, it will cost a lot to use a debt settlement company. But suppose you owe $15,000 and are charged the 15%. This would cost you $2250. If the company were to get that debt cut down to $7500, you’d save a total of $5250, so it isn’t really costing a lot to use a debt settlement company.

5. If I don’t settle a debt, it will stay in my credit report forever

We rate this one a half truth. That’s because debts that were settled will stay in your credit reports for seven years but not forever. They will also grow less critical as time goes by. If you did have that $15,000 in debt settled, it would definitely be a black mark for the first several years afterwards. Lenders would see you had settled your debts instead of paying them off in full and would be less likely to give you credit. When you did get new credit it would cost you more in the form of higher interest rates. Four or five years after your settlements they would have less of an impact, especially if you had stayed current on your debts and had not missed any payments during that time.

6. Debt negotiation will get me completely out of debt

We will rate this one a half truth because debt negotiation may get you completely out of debt. The problem is it might not. Unfortunately, some debts just can’t be negotiated. This includes student loan debts, automobile loans, mortgages, and other secured debts. And some lenders simply won’t settle regardless.

In summary

Debt negotiation can definitely be a path out of debt. However, before you sign up with a debt settlement company, it’s important to consider the half-truths and total lies you’ve just read. You should now be in position to make an informed choice as to whether this is for you or you need to find another way to deal with your debts.

Have your unsecured debts – such as your credit card debts – reached the point where you feel you’re headed for a financial disaster? Are you part of the nearly one-fourth of the Americans that are living from paycheck to paycheck? Or are lying awake nights – tossing and turning — worrying what you can do if you have a financial emergency?

If you answered yes to any of these questions, the good news is that there is help available in the form of debt negotiation. But what is it and what do you need to know before attempting it.

What exactly is debt negotiation?

Debt negotiation is where you contact your lenders to get your interest rates reduced, to skip your payments for a few months or to settle your debts. Getting your interest rates reduced would mean lower monthly payments, which should make it easier for you to make them. Getting your payments waived for three or four months would give you time to get your finances organized and, hopefully, to get caught up on them. Debt settlement means offering your creditors lump-sum payments for less than your balances.

The most popular

Which of these three options is the most popular? It’s debt settlement by far. The reason for this is simple – it’s the only way to save money by paying off your debts for less than you owe. It started to rise in popularity following the Great Recession of 2007 and continues to be the choice of many debt-strapped Americans.

It’s not as simple as just asking

It’s not as simple as just calling and asking your creditors to reduce your interest rates, to get your payments waived for a few months or to settle with you. You must be having a financial emergency of some kind and you may have to provide the documentation to prove it. What would be a financial emergency? It could be because you were hit with a huge medical bill, you lost your job, you were required to take a substantial cut in pay or you just went through a nasty divorce. The fact is no lender will agree to work with you unless you can convince it that you’re having a terrible time financially and that you need help. If you can prove this, most lenders will agree to negotiate with you.

You may need to play the bankruptcy card

If a lender is proving to be obstinate and refusing to settle with you, there’s always the bankruptcy card. This is where you tell the lender that if you can’t negotiate a reasonable settlement your finances are in such awful shape that you’ll be forced to file for bankruptcy. Some experts even suggest you lead with this threat. In either event, playing the bankruptcy card usually gets results because smart lenders know it’s better to get something instead of the nothing they’d get if you did declare bankruptcy.

Have an objective

Before you contact a lender to discuss debt settlement you need to have a number in mind. For example, your goal might be to settle the debt for 50% of your balance. This would mean starting lower – like maybe at 30% – so you will have room to negotiate. Don’t expect the lender to immediately agree to your offer as its likely you’ll get a counter offer for maybe 90% and can then go from there.

Understand the second absolute

In addition to absolutely needing to have a story ready about your financial emergency, you absolutely need to have the cash available to pay for your settlement. The biggest motivation for a lender to settle with you is if it can get the money immediately. Your credit card debts are already on a payment plan as such so there’s no reason for the lender to an agree to any sort of a payment plan. It has to be “I’ll get you the money immediately in the form of a cashier’s check or wire transfer”.

Know the debt negotiation deal breakers

It’s equally important to know about the debt negotiation deal breakers. You may have already picked up on the first one – which is not having a story. If you don’t have a story – as to why you need to settle the debt – few if any lenders will negotiate with you. The second-biggest deal breaker is if you’re not a very good negotiator. You have to be smart and be able to think quickly because you’ll be facing people who are very skilled negotiators. Finally, if you make promises and fail to keep them this will definitely break the deal. For example, if you tell the lender you’ll send it the money to settle the debt immediately but then fail to do so, that lender will never agree to negotiate with you again.

Have you considered debt settlement as a way out of your debt problems? Thousands of Americans have chosen it. They’ve settled their debts or hired debt settlement firms to handle the task for them. If you owe more, and maybe a lot more, than $10,000 and are four or five months behind on your bills then debt settlement could be a good option.

The downside of DIY debt settlement

Some experts believe that DIY debt settlement is better than hiring a debt settlement company because lenders are more likely to agree to better settlements with individuals than with a professional settlement firm. The big downside of DIY debt settlement is the need to have money available to pay for the settlements. Let’s say you owe $4000 on one credit card, $3000 on another and $8000 on a personal loan. If you’re a decent negotiator you might be able to get that $15,000 total settled for $7500. But you would need to have $2000, $1500 and $4000 available to pay for those settlements. And if you’re having a serious problem with debt, it would be very surprising if you had that much cash available. Fortunately, there is an alternative. You could get a personal loan and use the proceeds to pay off your settlements. But you might not want to do this unless you could get a personal loan with a much lower interest rate than the average interest rate of the debts you’re settling. Beyond this, here is five important things you need to know about personal loans.

The two types of personal loans

The two types of personal loans are secured loans and unsecured loans. A secured loan is where you are required to put up some asset as collateral to secure it. For example, auto loans are secured loans because the automobile is the collateral. Secured loans are fairly commonplace. Probably the biggest example of a secured loan is a mortgage as it’s secured by the house. If you were to default on your mortgage, your lender could actually repossess the house and have you evicted.

An unsecured loan is one where there is no collateral involved. The interest rates on these loans are typically higher to offset the fact that the lender is taking more of a risk because if you were to default about all the lender could do is sue you.

Banks aren’t the only place to get a personal loan

When you think about a personal loan the first place you probably think to go is your bank. But if you go only to your bank for a loan you may not get the best offer. What you should do instead is shop several different financial institutions just as you would shop for a car. That way you’re most likely to get a good deal. For example, credit unions are not-for-profits so they may be able to offer a lower rate than a bank. You might also check out some of the new peer-to-peer lending websites such as Lending Club, SoFI and Prosper. However, spoiler alert – you will need to have a pretty good credit score in order to get a loan from one of these lenders. But if you do qualify you will likely get one of the lowest interest rates available. For example, SoFI is currently offering personal loans with interest rates of 5.95% to12.99% APR and LendingClub has personal loans with interest rates as low as 6.78% APR.

What you want to avoid is a payday loan as those lenders typically charge exorbitant interest rates.

Your best option might not be a conventional loan

As you just read, it’s possible to get a personal loan at a very low interest rate but there’s an option that might even be better. It’s to get a 0% balance transfer card. Some of these have interest-free periods as long as 18 months and at least one card issuer has a balance transfer card with 0% interest for 22 months. However, you’ll need a pretty good credit score to qualify for one of these cards.

In addition, there is a possible negative to using the money from one of these cards for debt settlement. It’s that under normal circumstances if you write a check to get money from a credit card account you’ll get slammed with an interest rate that could be as high as 22%. While this might not be the case with a 0% interest balance transfer card, it’s certainly something you would want to check out before signing up for the card.

Don’t apply for multiple personal loans

Every time you apply for new credit it triggers a credit inquiry. This will ding your credit score. If you were to apply for just one loan your score would be dropped by just two points. If you have a decent credit score that probably wouldn’t make much of a difference. However, if you were to apply for six different loans that would ding your credit score by at least 12 points and could drop you from having very good credit to just good credit.

Have you thought about using debt negotiation to get out of debt? It’s become very popular since the Great Recession when many people found themselves in a position where they just couldn’t pay what they owed.

How debt negotiation works

Debt negotiation or debt settlement is a fairly simple concept. You or your representative contacts your lenders and offers to pay off a debt for less than you owe with a lump sum payment. For example, you might be able to negotiate a debt settlement of $2000 on a $4000 debt. The key here is to be able to offer an immediate lump sum payment as this is one of the biggest, if not the biggest, bargaining chips. In fact, if you can’t offer an immediate lump-sum payment there’s really no point in contacting a lender as it’s almost certain that it won’t accept your settlement offer.

What debts can be negotiated?

The only debts that are subject to negotiation are unsecured debts such as credit card debts, personal loans, lines of credit, payday loans and old cell phone bills.

The advantages of using a debt negotiation company

While it is possible to negotiate your settlements, most people hire a professional debt negotiation firm. The major reason for this is because they then are required only to transfer a set amount of money each month to an escrow account instead of having to worry about lump-sum payments. When a sufficient amount of money has accrued it in the escrow account, the debt negotiation firm will contact its client and ask that he or she release enough money to settle one of the debts. This will continue until it has settled all of the debts.

A second reason why so many people choose to use a debt negotiation company is because it removes the need to negotiate face-to-face with their lenders. Good debt negotiation companies have trained and experienced counselors who are used to working with all the big lenders and are almost always able to get much better settlements than people can themselves. In fact, they’re usually able to negotiate settlements for 40% to 70% of their clients’ original balances.

Third, once you hire a debt negotiation company you’ll have a new financial freedom because you’ll no longer be required to deal with your lenders. Most, if not all. of those calls from irate creditors will stop. You’ll be able to answer the phone without having to worry who’s on the other end of the line.

Fourth, it’s likely that you’ll be out of debt faster than if you tried to repay the debts yourself. Depending on how much you owe you could be totally free of your unsecured debts in just 24 to 48 months. In comparison, if you choose to use a credit counseling agency and have a debt management plan it could be five years before you were debt free.

Why debt negotiation is better than bankruptcy

Have you thought about that settlement through negotiation to get out of debt? Debt settlement will have an effect on your credit score and your credit history but not as severe an effect as if you filed for bankruptcy. In fact, most experts believe a bankruptcy will drop your credit score by around 200 points, which could be devastating. While debt settlement will not have that serious effect it will damage your credit score because your debts will be reported as “settled,” “settlement” or “settled for less than full amount”. But this will show prospective lenders going forward that you did what you could to pay off your debts instead of walking away from them.

How to choose a reputable debt negotiation company

Many debt settlement firms sprung up as a result of the Great Recession. Unfortunately, not all of them were honest and reputable. Our Federal Trade Commission has weeded out a lot of the fraudsters but there are still some out there waiting to swindle unsuspecting people. There are several ways to know if you’re dealing with a reputable debt negotiation company. For one thing, they never charge any fees upfront.

In comparison, the swindlers will pressure you to pay their fees before they’ve negotiated any of your debts. Second, reputable debt negotiation firms will belong to the American Fair Credit Council, which is the watchdog of the settlement industry. These firms will have at least an A rating with the Better Business Bureau and will have won a host of awards. Finally, their fees will range from 15% to 25% depending on the size of your debt it’s settling. A percentage of their fee will be added to each of your monthly payments but the money won’t actually be collected until it has settled all of your debts.

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.

If you feel as if you’re faced with an overwhelming amount of debts, you could consolidate them through a credit counseling agency. There may be one near where you live or if not there are numerous ones available on the Internet. The best ones are nonprofits and charge very little or nothing.

If you decide to use a credit counseling agency you will need to be careful in choosing one. If you choose an agency that’s poorly run it could end up costing you money and doing very little to help you. If you do your homework and choose a reputable credit counseling agency there are still some things you should be aware of.

A third party will be making your payments

Regardless of the credit counseling agency you choose you will have a DMP (debt management plan) that will call for you to make a payment each month to the agency, which will then distribute the money to your lenders until all of your debts have been repaid. These agencies do not settle your debts and they don’t provide loans. The best ones have good working relationships with most financial institutions and can negotiate to get your interest rates reduced as well as many of your late fees waived. That way a larger percentage of your monthly payment will go towards reducing your debt instead of paying finance charges. Of course, if you have loans with creditors that won’t work with credit counseling agencies then the benefits you get through credit counseling will be reduced.

All DMPs are fundamentally the same

No credit counseling agency can get preferential treatment from your creditors. While the quality of credit counseling agencies can vary as can their employers all debt management plans are about the same. You will be assigned a credit counselor who will determine how much you’ll need to pay each month in order to pay your creditors in full in either 3 or more likely 5 years. Generally speaking, your fee will be about 2.5% of the total amount of your debt. Since you’re not signing a contract you can opt out of your program whenever you like. And whenever you have some extra funds you can pay extra and become debt free even quicker.

Counseling before consolidation

When you first get a credit counselor he or she should review your finances and may then offer some options besides a debt management plan. In fact, the time you spend with a compassionate and knowledgeable credit counselor should be motivating and enlightening. On the other hand, if your counselor seems judgmental, pushy or bored you should ask for a different one.

Debt consolidation through a credit counseling agency isn’t for everyone

Using a credit counseling agency is best if most of your debts are unsecured debts such as department store cards, personal loans, credit cards and sometimes accounts that have gone to collection. Unfortunately, if most of your debts are secured debts such as your mortgage or auto, motorcycle or boat loans there’s not much a credit counseling agency can do to help you. This is equally true if the majority of your debts are tax debts, student loan debts, spousal support, or unpaid child support. This is because these are all debts that can’t be negotiated. In addition, you must be convinced you’ll be able to make your payments for the 3 or 5 years and not for just a month or two. And you must have enough money left over to cover your essential living expenses and something you can put into savings.

You’ll lose your credit cards

One of the things the credit counseling agency will require of you is that you close all of your accounts and not get any new ones until you become debt free. This can be an awful adjustment if you’re used to using those little pieces of plastic on a daily basis. But it just makes sense. If you’re continuing to charge while making payments on your debt management plan you’re just basically spinning your wheels.

You’ll still have work ahead of you

You will continue to receive statements from your lenders, which you will have to monitor and then send to your agency. This is because the reports you get from your credit counseling agency won’t include the interest that you’re still being charged. So, if you don’t send in those statements the balances reported by your agency can be seriously different from what’s reported in the statements you get from your bank. Some credit counseling clients have been totally shocked when they believe they’ve paid off all their debts only to find they still owe thousands of dollars in interest.

Some lenders will view it negatively

Using a credit counseling agency will not affect your credit score as would a bankruptcy but some lenders will view it negatively. This is because some of your creditors will see that you’re making your payments via a third-party and view it as something of a danger sign. However, if you’ve been having a problem paying your bills then making payments on time to your credit counseling agency could actually help your credit reports.

If you’re not familiar with debt negotiation you should be. It’s a tried and true way to get debts under control. The idea behind debt negotiation is fairly simple. You contact your creditors one at a time and attempt to negotiate concessions that would help you better handle your debts and in some cases even get them paid off for less than you owe.

What can be negotiated?

When it comes to unsecured debts there are four things that can be negotiated. As you may know, unsecured debts are those where you were not required to provide any collateral and include credit card debts, personal loans, personal lines of credit, medical debts, etc. The four things that can be negotiated are: To have your interest rates reduced, to get payments waived for several months, to have credit card debts converted into repayment plans and to settle your debts for less than their balances.

Make a list

The first thing you will need to do is make a list of your unsecured debts and then identify what it is you want from each of those lenders. For example, with credit card debts your objective might be to get your interest rates reduced but with a personal loan it might be to settle it. The critical thing is to have an objective to discuss with each of your creditors before you begin making phone calls.

What’s your story?

Another thing you need to have before you begin contacting your creditors is your “story” of why it is you need help. This must be something having to do with your finances that caused a serious problem such as a divorce, losing your job, a death or if you were forced to take a dramatic pay cut. It should be simple and believable. Your creditors don’t want to hear a long and complicated sob story. They simply need to know why you’re in trouble financially and why they should help you. For example, you might say, “I’ve been unemployed for the past six months, I’ve fallen behind on all my bills and I simply can’t pay what I owe you without some help.” At that point you may want to stop talking and wait to see what the customer service representative says in response.

It may take time and patience

When you begin making calls to your creditors the odds are you’ll first get people that don’t have the authority to negotiate with you. The people who first answer the phone are usually able to answer only questions about balances, minimum payments, due dates and the like. It just may take some time for you to work your way up the corporate ladder to someone that could negotiate with you.

Negotiating from strength

You may feel a bit anxious when you first contact someone with whom you can negotiate. But you do have some power. You have what your creditors want, which is to be paid. They’re experienced enough to know that if they refuse to negotiate with you your only option may be to declare bankruptcy in which case they would get nothing. In fact, there are financial experts who say you should lead with this threat as in, “if you refuse to negotiate with me over this debt, I’ll file for bankruptcy”. Above all you should be polite and courteous and never lose your temper. The old saying that honey attracts more flies than vinegar is definitely true in debt negotiation.

The ultimate solution

While an interest rate reduction could help you with your credit card debts the ultimate solution is to settle them for less than their balances. To do this you will need to be a decent negotiator because you’ll be up against people that are experienced at this and whose job is not to give away their company’s money. You will also need to have the cash available to pay for any settlement you’re able to negotiate. This is both a powerful bargaining chip and almost a necessity. When you offer to settle a debt for, say, 50% of what you owe you will need to follow up on this by offering to pay off the debt immediately by wire transfer or cashiers check. This will not only help close the deal but is a necessity in that very few, if any, creditors will agree to settle a debt if they can’t get paid immediately.

If you have a personal line of credit, some medical bills and a couple of credit card bills you would be a candidate for debt negotiation. However, you might not be a really good candidate.

The warning signs

There is some warning or danger signs that you’re headed for trouble with debt. When this is the case you might be a very good candidate for debt negotiation.

For example, are you receiving calls from your creditors? Are you letting your bills pile up in a corner and gather dust? Have you taken cash advances from one credit card in order to pay other bills? Do you have to prioritize which bills you’ll pay this month because you can’t pay them all? Or maybe you’re using your credit cards for everyday purchases such as gas and groceries?

If you answered “yes” to several or all of these questions then you might be a very good candidate for debt consolidation.

Negotiating with your creditors

What you don’t want to do in negotiating with a creditor is just call and just ask for help. Many creditors will be willing to work with you but only if they know exactly what it is you want. In other words you need to be specific. For example, if you have high interest credit card debt you might try to negotiate a reduction. If you were able to get credit card debt at 19% or higher negotiated down to, say, 12% your payments would be lower and it might be easier for you to make them.

Although most people don’t realize this it’s also possible to negotiate a timeout of two, three or four months during which you would not be required to make payments on a debt. If you were able to do this you have time to organize your finances and maybe get caught up on your payments. Of course, some lenders will continue to charge interest on your accounts so it’s important to learn whether this would be true before you agree to a timeout.

Try converting credit card debts into payment plans.

If you have a lot of credit card debts you might be able to get them converted into payment plans. You would most likely have to give up those credit cards but in turn you would have a fixed payment and a fixed term – or amount of time before you would be debt free. This could make it easier for you to pay on those credit cards and might increase your peace of mind.

Offer lump some payments.

Short of declaring bankruptcy the ultimate way to pay off debts is through debt settlement. If you have the cash available you could contact each of your lenders and offer to make lump sum payments to settle your debts but for much less than their balances. If you’re a reasonably good negotiator and can prove that you’re having a serious financial hardship you might be able to settle your unsecured debts for as little as fifty cents on the dollar.

Get some counseling

Before you rush off to try to negotiate with your creditors you might try consumer credit counseling. There are numerous credit counseling agencies available on the Internet and there may be one where you live. Whether you choose an online or local agency you will have a debt counselor that will review your finances and probably recommend a debt management plan. This would consolidate your debts because if your lenders approve your debt management plan you will no longer be required to pay them. You will pay the credit-counseling agency once a month and it will distribute the appropriate funds to your lenders. When you sign up for a debt management plan you will probably be required to give up your credit cards and not take on any new debt of any kind until you complete your program, which generally takes about five years.

Stay calm and consider your options

No matter how deeply you’re in debt don’t panic. As you have read there are solutions available and debt negotiation is one of the best of them. Define what it is you want from each of your creditors before you start contacting them. Be prepared to have to make multiple phone calls before you get through to people that have the authority to negotiate with you. State what it is you want and always be polite and civil.. Treat the customer service reps you talk with politely and no matter what’s said keep your anger in check. Always remember the old saying that honey attracts more flies than vinegar

Struggling to keep up with your bills? Feel like you’re hip deep in debt and still sinking? This can be very stressful and stress can cause physical problems such as heart disease, arthritis, bladder infections, fibromyalgia and even asthma. That’s right. The stress you’re feeling regarding your debts could even be causing you to suffer from asthma or diarrhea.

One good solution

There are some different options for getting debts under control and paid off. One of the best of these is called debt negotiation. It’s where you contact each of your lenders and attempt to negotiate concessions that would make it easier for you to pay off your debts. But – spoiler alert – the critical word here is negotiate, as you need to be a pretty good negotiator to make any of this work.

Getting started

Debt negotiation is definitely an area where you don’t want to put the cart before the horse. This is a simplified way of saying that you don’t want to start contacting your creditors until you’ve done your homework. What this means is you need to get all of your ducks in a line by assembling all the information regarding your financial situation including your income, debts and assets. You will need to have documentation as to how much you owe to each of your lenders, your balances, due dates and the last time you were able to make payments on any of your debts. The reason for this is that you won’t be able to wring any concessions out of any of your lenders unless you can prove that you’re truly having a serious financial hardship. What negotiation really gets down to for your creditors is losing money and no creditor will be willing to do this unless you can prove beyond a shadow of a doubt that you really do need help.

What can be negotiated

As a general rule you should be able to negotiate on all or virtually all of your unsecured debts but not your secured debts, These are debts such as an auto loan or mortgage where you were required to provide some asset to secure it. Unsecured debts that typically can be negotiated include credit card debts, medical debts, cell phone debts from providers you’re no longer using and past-due utility bills. Collection agency accounts,, past-due rent and even civil court judgments can also be negotiated.

Once you get all of your documents together proving that you are truly having a financial hardship you need to make a list of all of those lenders with whom you believe you could negotiate. You might want to prioritize this list by focusing first on your biggest debt. Next, you need to determine an objective or the concession you want out of each of your lenders. The four most common concessions are:

  • Interest rate reduction
    Waiver of payments
    Conversion of debts into repayment plans
    Debt settlement.

The first of these – getting a reduction in your interest rates – is pretty self-explanatory. The second, a waiver of payments, means negotiating for a sort of timeout of two or three months during which you would not make any payments on the debt. The idea behind this is that this would give you time to get your debts in order and even possibly catch up on some of your payments.

A third concession would be to have your debts – especially your revolving debts such as credit card debts – converted into a repayment plan. This would most likely mean giving up your credit cards but the upside is that you would have both fixed payments and fixed terms so that you would know just when you would have those debts paid off.

However, the fourth option – debt settlement – is by far the most popular. What this amounts to is negotiating a debt down to a lesser amount and then paying it off in a lump sum. The reason why it’s popular is because of just this – that you’re paying off the debt for less than you owe. For example, if you are a very good negotiator you might be able to negotiate a $5000 credit card debt down to $2500 or even less.

The effects of debt negotiation on your credit

Of the four options discussed above there are three that would have virtually no effect on your credit reports or credit score. They are getting your interest rates reduced, converting your revolving debts into a payment plan and getting a few months of your payments waived. However, debt settlement will definitely have an adverse affect on your credit score. While no one with the possible exception of FICO (the credit score reporting company that most lenders use) knows how much it would drop your credit score it’s thought it would reduce it by roughly 80 points. In addition, the fact that you settled those debts instead of paying them off in full will be on your credit reports and will stay there for seven years.

 

Why has a debt collector contacted you? The reason is simple. You got so far behind on one of your bills that your lender sold your debt to a debt collection agency. This typically happens if you haven’t made a payment for six months or more. And of course the bill in question is probably a credit card debt because that’s where most people get into trouble. The fact is that it’s just much easier to engage in impulse buying with a credit card then when you have to put down cold, hard cash.

The secret that debt collection agencies don’t want you to know

What debt collection agencies don’t want you to know is that when they purchased your debt they paid much, much less than its face value. The way it works is that lenders such as the credit card companies bundle up debts on which they’ve been unable to collect and sell them to collection agencies for pennies on the dollar. You’re $700 debt might have cost the debt collection agency less than $1.00.

Why debt collectors will negotiate

Given the fact that debt collection agencies pay so much less for your debt than its face value you can see how this would give you room to negotiate. In fact, this is why many debt collectors will agree to settle meaning yo will pay less than the total amount that you owe on the debt. If you are able to negotiate a settlement, this will appear on your credit report as negative information but at least it proves that you took responsibility for paying as much on your debt as you could. It will show on your credit report as settled and no longer as outstanding.

How to negotiate with a debt collector

The way that you approach negotiating a settlement with a debt collector is to first determine what you can actually afford to pay. Review your budget very carefully. Never offer to pay more than you can afford. Once you determine how much you can afford to pay then you can begin your negotiations by offering less. Whatever you do, do not give a debt collector any of your bank account numbers, information about where you work or any references.

Once you’ve reached agreement

When you reach agreement on a settlement be sure to ask the collector to remove all negative information from your credit records related to the debt since he received it. While he can’t do anything about any negative information that had been added to your credit file before it was turned over to him he could remove whatever negative information he has added regarding the settlement.
Note: Be sure to wait a month or so and then check your credit reports to make sure that he did remove the negative information.

Put it all in writing

Before you give the collector any money, get the details of the settlement in writing. If there’s big money involved you might want to go so far as hiring an attorney to review the agreement. However, at the minimum your agreement should clearly state how much you have agreed to pay and whether you will pay in a lump sum or over some period of time. It should include when the payments or lump sum is due and how your payments will be made such as with a cashier’ check or an electronic bank transfer. Do not give the debt collector one of your personal checks.

The agreement should also clearly state what concessions the debt collector has said he would make, the conditions that would breach your agreement and what would be the consequences of a breach. Finally, your agreement should include the fact that the collector will report your debt as “paid in full” to the credit bureaus when he receives the settlement money.

When to sign

Carefully review what you’ve agreed to and then sign the agreement. Do not sign it before this. Also, do not sign it unless you understand everything in the agreement. Be sure to make a copy of the agreement for yourself and file it away in a safe place. In some cases the debt collector may refuse to put your agreement in writing. If this happens, you’ll need to prepare the agreement yourself then sign it and send it to the collector’s agency via certified mail with return receipt requested.

If the collector refuses to negotiate

In the event that the debt collector refuses to negotiate with you, you will need to contact the lender that sold your debt to the debt collection agency. Discuss settlement with the creditor and you may be able to work out a decent compromise.

If you don’t feel confident

If you don’t feel good about trying to negotiate with a debt collector you have several options. You could hire a consumer law attorney to handle the negotiations for you – especially if it’s a very large debt. Second, you could hire a debt settlement company. These companies have experienced debt counselors that have good working relationships with all the lenders and debt collection agencies. They are usually able to negotiate better settlements than people can themselves. Of course, their services will cost you something but the money it saves you will cover its fees and you will still save money.