| How to Negotiate Debt? |
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| Written by Isaac Arnold |
| Thursday, 11 February 2010 19:26 |
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When you first look at debt negotiation is looks like a quick easy way to get rid of your debt. But before you take the leap and do it, or hire out to get it done, you need to understand the process and what will benefit you and be bad for you.
When you first look at debt negotiation is looks like a quick easy way to get rid of your debt. But before you take the leap and do it, or hire out to get it done, you need to understand the process and what will benefit you and be bad for you. Most people hire a debt settlement company to do the dirty work for them. The first process they will do is have you stop making any payments toward your debts. Instead, the company will set up a trust account for you to put your payments into. Then once the account has enough money (between 25-50% of the total debt you owe) the company will begin negotiating a payoff amount with your creditors. Typically this amount will be no more than the cash you have already accumulated in their trust account. Once an amount is settled on, the company will pay the debt off in one lump sum. Not everyone will benefit from debt negotiation. Everyone circumstances are different and so they should thoughtfully reviewed before a course of action is set. First of all you have to be at least 3 months in arrears in order to be considered for this program. Second, it will sting your credit because you will be forgiven some of your debt. And last, you will most likely receive a 1099 form at the end of the year with the amount of the forgiven debt and have to pay taxes as if you made that money. However, for a person that is facing bankruptcy as the other option, this is a far better plan. Also, it will help with stress, because a settlement company will be screening all the calls from your creditors instead of you. Debt negotiation has a downside. First, it costs a lot to hire a company to do the work for you. The going rate is about 20% of the debt you are forgiven. So if you owe $10,000 and are forgiven $5,000 you will have to pay the company $1,000 to negotiate the debt for you, and sometimes they want a portion of it up front. If you do it yourself, you will have to take a lot of time and keep your head on straight and don't let your emotions get in the way. Second, you have to stop making payments to your creditor which will make them mad so you may start getting some nasty phone calls. Third, you will owe taxes on the forgiven amount. And last, it will damage your credit some. Carefully consider the benefits and disadvantages to debt negotiation to determine if it is right for you, and then you can decide whether to hire a company or to do it on your own. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. This is negotiating credit card debt a good idea. How to make the most of a bad situation. |