Two Proven Alternatives To Debt Negotiation

Are you trying to work your way out of debt? Well, good for you. There are very few emotions better than the feelings you’ll get when you become debt free. However, make no mistake about it. The road to debt freedom has its potholes and its detour signs. And no matter what some people might want you to believe, if you have $7500 or more in debts you have a long road ahead of you. There is just no quick way to get this amount of debt paid off quickly and painlessly.

Debt negotiation can be a good option

If you’ve never before run into the term debt negotiation it’s where you contact each of your lenders and negotiate lump sum settlements for less than you owe. If you’re reasonably good at negotiating you should be able to get your debts at least cut in half. Of course, you will need to have the cash available to pay for those lump sum settlements, as very few lenders will agree to settle with you unless you can promise to send in the money immediately.

Get everything in writing

If you are able to successfully negotiate a debt settlement be sure to get everything in writing. This should include the name and phone number of the person with whom you spoke, the date, the amount you settled on, any fees you agreed to pay and any other terms or conditions. If the lender’s customer service representative won’t provide you with this information, you’ll need to write the letter yourself and then send it to your lender – – certified and return receipt requested.

The pros and cons

There are three definite pros to debt negotiation. First, as you have read it’s a way to get debts slashed by as much as 50%. Second, it can lead to debt consolidation if you choose a debt settlement company because once all your debts have been settled you will have a repayment plan and would be making just one payment a month. And last but not least you would get all of your creditors and debt collectors off your back.

The biggest con of debt negotiation is that you must have the money available to pay for your settlements. This is a sort of Catch 22. You need to have the cash on hand to pay for your settlements but if you had that much cash you might not be in trouble with debt in the first place. The second con is that you need to be a pretty good negotiator because you’ll be up against some real professionals.

Consumer credit counseling

One proven option to debt negotiation is consumer credit counseling. There are consumer-credit counseling agencies in just about every city of any size. If you can’t find one locally its easy to find one on the Internet. Just make sure you choose one that’s a nonprofit and charges very little for its services.

With consumer credit counseling you’ll have a debt counselor that will review your finances and help you develop a budget. He or she will then contract your creditors to determine if they would be willing to settle for the payments you could afford to make – depending on that budget. Your debt counselor may try to negotiate a reduction in your interest rates to help you get your debts paid off faster. He or she may offer you a debt management plan (DMP). If you accept your plan you would then make payments directly to the credit-counseling agency each month and it will then distribute the funds to your creditors. Assuming you stay with your DMP you should be debt-free in about five years.

 A debt consolidation loan

The second proven alternative to debt negotiation is a debt consolidation loan. There are two types of these loans – secured and unsecured. If you have a decent credit history you might be able to get an unsecured loan, which means you wouldn’t have to offer any collateral to secure it. Unsecured loans are also often called signature loans or personal loans.

If your credit history isn’t so good, you may be required to take out a secured loan such as a home equity loan or a homeowner’s equity line of credit (HELOC). As a general rule secured loans have lower interest rates than unsecured loans because the lender is taking less of a risk. If you were to default on a secured loan your lender could repossess whatever it is you put up as collateral. In comparison if you were to default on an unsecured loan your lender would be basically out of luck.

The pros and cons of a debt consolidation loan

Debt consolidation loans can be a useful tool in debt management because they require just one payment a month vs. the multiple payments you’re probably making now. Second, your debt management loan should have a much lower interest rate than those of your current debts, which should translate into a lower monthly payment than the sum of the payments you’re currently making.

The biggest con of a debt consolidation loan is that it does nothing to reduce your debts. If you owe a total of $8000 to three different lenders and consolidate them into a single loan you would still owe the $8000 – just to a different lender. Also, you might have a much lower interest rate but you will pay more interest over the course of the loan because it will have a longer term. For example, HELOCs are generally for 7 or 10 years while home equity loans could be for 20 years or longer.

Which one of these options is best?

Fortunately or unfortunately there is no one best way to pay off debts. Each of these three options has, as you have read, its own pros and cons. If you’re struggling under a load of debt the best thing you can do is just pick one of these alternatives and get going. The longer you put off repaying your debts the more interest you will be charged and the larger your debts will grow.