Debt negotiation or debt settlement is the process of striking a deal with your creditors so that you can pay a reduced part of the outstanding balance to stratify your debt or to extend the period of repayment.
All parties are interested in debt settlement because it will allow you to pay a portion of the debt or all the debts over a specified period. This negotiation allows you to make affordable payments and gets some or all the money to the creditor to satisfy your debt. In certain cases, creditors might accept a smaller amount than receive nothing.
Reasons Why Creditors Accept Debt Settlements
Creditors will accept debt settlement for several reasons. Here are the important ones:
- Getting something is better than getting nothing. From creditor’s point of views, this is an incentive to negotiate, which is better than forcing a debtor into bankruptcy. The creditor will receive nothing if the bankruptcy is allowed. By negotiating the debt, the creditor will receive a percentage of what is owed. They also won’t have to expand more resources on trying to collect the debt.
- The creditor counts it in as a cost of doing business. For example, credit card companies understand that a certain percentage of money owed to them will be written off. The offset for these write-offs is charging a higher interest rate to many customer debtors. In their business plan they have accounted for negotiated debt reduction.
- Using the credit card companies as an example, the higher interest rates to cover write-offs, allows for more profit from those paying debtors.
Most creditors negotiate debts for the first reason. Getting a debt settled is a means to get some money out of the debtor. Clearing the books of bad or under performing debts keeps the business clean and is less costly in the long run.
Self Help Debt Negotiation Vs Debt Settlement Company
No matter who you are, how much debt you have, or how much money you make, you can use debt settlement. You can negotiate debt settlement yourself or get the help of a debt settlement company, whichever you would prefer.
Are you a good negotiator? You will be able to use negotiation techniques so that you can pay just a portion of the debt. If the creditor is not interested in this sort of negotiation, talk them into lowering the interest rate, doing away with past interest charges, or even allowing you to repay your debt over a longer period.
A good way to improve your chance of success you can also enroll in a company that offer debt settlement training and coaching like ZipDebt. Such a company can provide the direction and creditor-specific advice so you don’t need to apply trial and error approach to get results.
In many cases the help of a professional debt arbitrator is not necessary, although it often helps a bit to have someone who knows what they are doing. But whether you want to use a debt negotiator or not, you still need to have debt negotiation skills before contacting your creditors.
Remember, whichever debt negotiation method you choose you have to believe that you deserve a brighter financial future.