The Difference Between Debt Negotiation
and Debt Consolidation Counseling
Debt negotiating, or debt settlement negotiating, is, as the
name would indicate, the process of negotiating down the amount of debt you owe.
Debt negotiators like Debt Advocates will work with you to eliminate as much
as 70% of your debt and help you get out of debt for good. It may sound like the
ideal solution, but debt negotiation can have
adverse effects on your
credit report.
Despite that, debt negotiation can be a great way to start fresh for those who
can’t foresee debt freedom in their future due to overwhelming bills. If you
believe that debt negotiation is the way for you to
get out of debt, sign up to
talk to a debt negotiator today.
The other main alternative "get out of debt plan" to bankruptcy is debt
consolidation counseling. Debt consolidation is
done through companies that provide the opportunity to combine all of your monthly debts into one
monthly payment at a reduced amount - so that you can pay off your debts more easily and have some
breathing room. Also, interest and penalties are usually greatly reduced.
Unlike debt negotiation, your credit rating will remain relatively unharmed with
debt consolidation. For free debt consolidation advice and a free debt consultation,
sign up with Debt Consolidation Advisor today.
Debt Negotiation
– The Pros
During credit card debt negotiation, a debt settlement negotiator will discuss your status with your creditors and offer to pay off your debts for what they call "pennies on the dollar." This means, simply, that most creditors would rather take $3,000 cash now than attempt to get $9,000 out of you in the next ten years. Your creditors know that if you're using a debt negotiator, you probably aren't a good risk for continuing payments. Once you’ve settled your debt negotiations, your decision to take control and get out of debt will likely leave you feeling a lot more free.
Debt Negotiation
– The Cons
So why doesn’t everyone use credit card debt settlement negotiation to
get out of debt - since you pay a lot less on your debts? Because it's not as easy as it sounds. There is a hefty cost in other areas.
While debt consolidation salvages some of your credit rating because you’re actually paying
off everything you owe, debt settlement negotiation ends up trashing it. Why?
Because to qualify for
debt negotiations, you need to establish that
your finances are in dire shape and that you cannot possibly pay the monthly payments.
To get started on the debt negotiation process, you will need to
stop paying your bills for months. Collection agencies will write to you and
call you. You may be threatened with legal action. This is not for the faint of heart.
Debt Negotiators
: What Do They Do?
Your debt negotiator will:
- Negotiate with creditors to determine what they'll take as a lump sum, one-time settlement of your debt.
- Establish an account you pay into for a period of time (often as long as a few years) instead of paying your bills. The money accumulates to be used to make the lump sum debt settlement payments.
- Teach you strategies for dealing with letters and phone calls from collection agencies and creditors throughout the debt negotiation process.
- Pays off the debt settlement in full from your account once you have put in enough to cover it, usually for 40%-60% less than the full amount of the debt.
- The debt negotiator usually makes a commission of between 14%-25% of the total settlement.
Debt Consolidation Counselors: What Do They Do?
- Unlike debt negotiatiors, consolidation counselors will negotiate with creditors to reduce ONLY the interest rates and reduce or eliminate late fees and penalties
- Combine all non-secured debt into one lower, monthly payment
- Usually reduce what you pay monthly by about 20%-40%
- Charge a monthly service fee of about 10%
- Provide a letter of reference for your credit report
- Usually require that you close all credit card accounts but one, which you may keep for occasional or emergency use
Debt Negotiation or Debt Consolidation Counseling
– Which is Best for You?
If you need some help through a tough patch and really will be able to pay off your
debts eventually, debt consolidation is probably a better option than
debt negotiations. You’ll receive a free
debt consultation and still save on interest
and penalties while not destroying your credit rating.
- If you have no chance of ever paying off what you owe, you may want to look into debt settlement negotiations as an alternative to bankruptcy. Debt negotiation can cut what you will owe by more than half, which is a huge savings.
- If you are trying to salvage your credit rating, stick with credit counseling. Most debt consolidation counseling companies will write you a letter of reference, and, when you have completed the program, you will be able to reopen most of your credit card accounts. Debt negotiation will close those avenues to you for a while.
- If you don't like confrontation and can’t deal with collection agencies and angry creditors, don't try negotiating a debt settlement; you have to spend years looking like you've skipped out on your obligations.
- If you're already behind on your payments and the collection agencies are already bothering you, there's no risk in using a debt settlement negotiator. Since you aren't making the payments anyway, you aren't losing anything by going into a debt negotiation program except for some of your debt load.
- Obviously, the final decision between debt negotiation and
debt consolidation is yours, based on not only what best fits your financial
situation, but also on what you can personally handle - especially in regard to the
debt negotiation option. You may want to do more research with individual
debt negotiators and debt consolidators before you make your choice.
Sign up with Debt Consolidation Advisor to speak
with leading
debt negotiators and credit counselors.
Credit Repair After Debt Negotiation
If you do decide to take the debt negotiation
route on your way to debt freedom, your credit report will suffer.
In order to get your credit back in order, it’s important to get started as soon as possible.
Contact a credit repair service such as Credit Repair after you enter the
debt negotiation process to ensure that your bad credit report does not follow
you around forever, preventing you from owning a house or buying a car in the future. Read more
about credit report repair here.
For more information on Debt Negotiation, sign up to speak to a debt negotiator or visit Debt Advocates.
