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Are Debt Negotiation Services Right for You?
Debt negotiation services, also called debt settlement
or debt arbitration agencies, are a solution that are right for you if you don't see any progress on a debt
management program.
If you can't make the minimum payment of a debt management plan or
have not paid your outstanding debt in the last 3 months chances are a debt negotiation program
is a viable option.
A debt arbitration company will negotiate with your creditors to reach
an agreed-to amount to pay off the original debt. The creditors are
willing to accept a reduction as much as 50-60% to collect your money
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 Debt Negotiation Services Work
Once you participate 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 on a monthly basis 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 initial correspondence
with the creditors.
There will be an administration fee to cover this
work.
Reasons to Consider a Debt Settlement Service
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 Curadebt has a much
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 cannot pay your reduced debt amount in full
-- you will end up with bad credit. For this reason most companies provide credit repair services to fix damaged
credit caused by the debt settlement plan.
Once you compare different debt relief
options and you believe that using a debt negotiation service is the best
option,
consider asking lots of questions before enrolling in their debt
negotiation program. Compare 2 or 3 different organizations and then
choose to work with a firm that has a good reputation with the Better
Business Bureau.
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