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Know Your Options
Before Considering Debt Negotiation
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Debt negotiation should be considered a last-resort measure before bankruptcy.
A lender has little motivation to accept a pay off for less than the
full amount unless the debtor is already months behind on bills. Debt
negotiation, also sometimes called debt settlement or debt arbitration,
is best reserved for use when debt is seriously delinquent. If you’re
considering debt negotiation, it’s important to be informed about all
the options available to help you deal with your debt.
Contacting creditors on your own, negotiating payment arrangements,
asking permission to skip a payment, or asking for a lower interest
rate are simple measures you can take as a first step to manage your
debt. Don’t consider any other course of action until you’ve tried these
options.
If you have a substantial amount of debt, a qualified credit counseling
service may be able to help you reduce payments and prevent further
damage to your credit report. Although credit counseling can provide
consumers with valuable assistance, some firms exist only to cheat their
vulnerable clients. These companies use their non-profit status to attract
customers who are then tricked into paying large fees. Those fees are
sometimes funneled to for-profit companies. Recently, the FTC and IRS
issued the following tips for choosing a credit counseling organization.
* Pay careful attention to the fees an agency charges, the nature of
the services it offers, and the terms of the contract
* Make sure that creditors are willing to work with the agency the you
plan to choose
* Consider using agencies that offer actual counseling and education,
instead of simply enrolling all clients in a debt management program
Another option for consumers overwhelmed by debt is to consolidate debt
by establishing a new loan with lower monthly payments. A debt consolidation
loan helps manage your debt because the loan is usually over a longer
period of time and possibly at lower interest than your existing debt.
Consolidation should be used when debts are mostly current.
While there are many options to help a consumer cope with unmanageable
debt, sometimes debt negotiation may be the only appropriate course
of action remaining. For example, debt negotiation would be a good course
of action if a long-forgotten debt is the only blemish on your credit
report. However, you may owe income tax on the debt owed. Any forgiven
debts of $600 or more are considered income to the consumer. The creditor
will send you and the IRS a Form 1099-C at the end of the tax year.
As a general safety precaution, anyone who plans on using a third party
to handle their finances should remember to check them out with the
Better Business Bureau and State Attorney General's Office of Consumer
Protection. These agencies keep records of credit repair services that
have mislead their customers about the impact the service would have
on their credit rating, the fees involved, and the possibility of legal
action from the creditors.
About The Author:
Peter Dobler is a veteran in the IT business. His passion for experimenting
with new internet marketing strategies leads him to explore new niche
markets.
Read more about his experience with credit and mortgages; visit
Credit
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