A debt negotiation company, also called debt settlement or debt arbitration agency, is a good solution if you don’t see any progress or can’t make the minimum payment on a debt management program. Enrolling in a debt negotiation program is a viable option, if you have not paid your outstanding debt in the last 3 months.
A debt arbitration company will negotiate with your creditors to reach an agreed-to amount to pay off the original debt. Your creditors are willing to accept a reduction as much as 50-60% rather than risk losing everything if you file for bankruptcy.
If successful, you will get out of debt with less money and in a shorter time period than other solutions.
How a Debt Negotiation Company Works
Once you take part in a debt negotiation or debt settlement program you stop paying your creditors. The debt negotiation company then takes monthly payments from you and stores it up in an account. Alternatively, they can ask you to store up the money in your own account.
During the accumulation of your funds, the law firm negotiates a debt settlement with your creditors for a lower payoff amount. Once the settlement is reached the debt settlement lawyer makes a lump sump payment to your creditors. In this arrangement, the more cash you have the quicker the settlement finalization.
Depending on the amount of your money, you will have two scenarios. First, you settle your debts for less than the amount of the lump sum. Or, you settle most of the debts, and there is a small amount left over for which you are setting aside funds every month to make settlements.
The debt arbitrator also requires creditors to report “paid in full” to prevent negative remarks in your credit report once you settle them.
The debt arbitration firm will be compensated by a commission based on how much your debt is reduced. The debt negotiation attorney should have a solid procedure for following up on any calls that you receive after first correspondence with the creditors. There will be an administration fee to cover this work.
Reasons to Consider a Debt Negotiation Company’s Plan
There are different reasons for opting to a debt negotiation plan. You are already on a debt management program and seeing no progress. Your income makes you do not qualify for bankruptcy, but you are unable to make the minimum payment. Or, you may have some home equity that you can use to get out of debt.
If you have large outstanding debts, a debt settlement program from a reputable firm like National Debt Relief has a better long term outcome than bankruptcy. Now you know why the service is promoted as “bankruptcy alternative” or “avoid bankruptcy”.
A debt negotiation plan, however, can be very risky and can have a negative impact on your credit rating. If your creditors never agree to settle — for example, you can’t pay your reduced debt amount in full — you will end up with bad credit. For this reason most companies offer credit repair services to fix damaged credit caused by the debt settlement plan.