Frequently Asked Questions About Debt Negotiation & Debt Settlement
Below are some common questions people have about debt settlement and the negotiation process along with their corresponding answers:
How do credit card companies decide who they will negotiate with?
When it comes to your finances most lenders know exactly what your financial situation is. They know about your past payment history and any other unsecured loans you might have. When you go to a lender to negotiate your credit card debts they will look at your big picture. If you have been making regular payments on other unsecured loans except for one they will assume that you can afford to make the minimum payment so they will be less likely to work out a deal with you. If they see you don't have the ability to make the monthly payments for all your unsecured loans then they will be far more likely to settle. People who have many assets such as a home/cars will have a more difficult time convincing the lenders to negotiate, as their assets are of value.
How do they find out my financial information?
They use a variety of methods that include:
- Information from your original loan/credit application.
- Your credit report/record and some other public records.
- When they see a trend they will call you and ask you about your financial situation.
What kinds of debts can negotiation/settlement companies work with?
These firms can negotiate many different kinds of debt that include credit card debt, medical bills, and other unsecured debts. A few companies can sometimes also help with student loans, but only in terms of removing late fees; and even this is very rare. Most companies will specialize in credit card debt negotiation, since credit card debts are typically unsecured, and comprise the bulk of American debt.
Very few settlement companies can help with secured debts such as mortgages or car loans, and if they do - the process is very different from typical unsecured debt settlement.
How far are the lenders will to negotiate?
This is based on each individual case and the policies of the credit card company. On average, with proper negotiations, the lenders will often settle for 25-50% of the total debt but this can get as high as 75% and as low as 10% in some situations.
What does debt settlement or negotiation do to your credit score?
This depends on the persons existing credit score. Someone will a great record will undoubtedly take a hit when they settle their debts, but someone with a tainted credit score can do more good then bad over the near term. This is not to say that your rating will instantly become enviable good once you settle, but getting back on track through a mutual agreement with your lenders is certainly better than defaulting on loans.
Should you do it alone or use a debt settlement/negotiation service?
As mentioned elsewhere you can negotiate with the credit card companies on your own, but it's strongly recommend you use a professional. The reason for this is the credit card companies are far more likely to work with a negotiation company compared to an individual off the street.
When you go to them representing yourself they are often not going to take you very seriously and will probably brush you off. Negotiation companies know exactly what to say to the credit card companies and what to expect in return, and the act of having one represent you shows the lender you're serious about settling your debt.
How long does debt settlement take?
Technically, the settlements themselves might happen very quickly after the process begins, but even reduced, there's still a balance that needs to be paid.
Debt settlement companies will often manage the payment process after the negotiations are completed, essentially acting much like a consolidation program. You send them a single payment after everything's arranged, and they distribute it to the creditors until they've been paid off. The length of these types of programs depend on a variety of factors, and settlement programs can be completed in anywhere between three months to five years.
