How debt negotiation works.

Debt negotiation may sound a lot like consumer credit counseling but they are different in many ways.  With this type of program an individual is assigned to you to go out and actually talk to your creditors and negotiate on your behalf to settle your debt much sooner. 

In fact you must qualify to even be in the program.

• You must demonstrate a hardship.  Whether this would be a loss of a job, a foreclosure, or even an injury that has laid you off work for a while you must be facing a hardship.  The point being you must show that you can’t solve your current financial situation and you need help.
• All debts must be unsecured.  So an account that is secured will not be excepted.  Other debts that won’t be excepted are Public utilities, student loans, Military accounts, MAC Tools, Payday advances,  and federal credit unions.  Although business deficiencies may be included.
• All accounts must be greater that $500 in order to be excepted and if they are over $500 and unsecured they must be included into the program.  Also depending on the company they usually want a minimum of $10,000 of total debt in the program all together. 
• While in the program you can not use your credit to obtain unsecured credit cards.  This is done so you don’t keep piling more debt into the program. 
• People who have declared Chapter 7 bankruptcy in the past 3 years will usually not be excepted in to the program. 
• Any 0% credit card accounts usually won’t be excepted into the program until the 0% time frame is up.

If you don’t meet any of these criteria you will not be excepted into the program.  So if your looking at this list above and you aren’t in a hardship this is not a program for you. 

So what are the advantages and disadvantages of debt negotiation?

Advantages

1.  Protection from creditor harassment.  If you are receiving a lot of calls from creditors they will pretty much stop right here.  Which is great because it will keep you from those negative call that keep you up at night worrying about those bills.

2.  Debt is reduced.  Usually the total unsecured debt is reduced by 40% to 60% over a period of 2 to 3 years.  In a lot of cases saving you a lot of money in interest payment you won’t have to make. 

3.  Improves credit ratings.  As you pay off your debts while in the program your credit rating will start to improve.  This will improve your credit much faster that bankruptcy which takes 10 years till it is off your record.

4.  Developes a savings habit.  If you aren’t a good saver this program will help you do so.

Disadvantages

1.  Credit rating can be affected at first.  If you are coming current with accounts you may experience a drop in your credit.

2.  Accounts settle individually.  As the funds accumulate the money will pay each debt off individually.  This will cause a bad credit rating as an effect.

3.  May seek legal remedies.  If the creditors aren’t getting payed they may choose to get the lawyers involved and take you to court to get there money.

If you are facing a tough hardship and have been thinking about bankruptcy you may want to consider this option first.  This option can save you a lot of money versus paying a lawyer to do a bankruptcy.  Debt negotiation is usually much cheaper.  However make sure they have the proper accreditation’s and that they aren’t some fly by night company.

Finally are you thinking about going through a debt negotiation program?  Have you ever been through this type of program?  What are your thought on it?  Was it worth it?  If you haven’t been through a debt negotiation programs what issues are you contemplating about?