Today. Debt negotiation (or debt settlement or debt forgiveness) is a common method of handling credit card debt. Negotiating credit card debt is an agreement between the debtor and creditor where the debtor agrees to pay a reduced amount of the debt as a settlement payoff of the full amount owed. In this negotiation the creditor agrees to take a loss and cease debt collection efforts if the debtor agrees to pay some reduced amount, either in a lump sum or over a term of payments. Debt negotiation should not be confused with debt consolidation . In debt negotiation, the creditor will agree to accepting a reduced balance after a period of time that the debt has been in default.
The cons of debt settlement are that the debt must be in default for the creditor to negotiation a reduced balance. For many consumers in debt they have no choice about the debt being in default because they have other more important bills to pay such as rent or mortgage and food bills. Because the debt is in default the consumer’s credit score will usually fall. However, consumers should note that anytime they are using 30% or more of their available credit limit their credit score falls.
The pros of debt negotiation are straight forward. A consumer will only pay back a fraction of the original balance that was owed. In this manner the consumer gets out of debt faster and for much less money than other debt management plans. The only method a consumer has to getting out of debt for less than the balance owed is bankruptcy, and the pros of debt negotiation over bankruptcy are numerous. A bankruptcy stays on a consumer’s credit report for 10 years, and a consumer can only declare bankruptcy every 7 years. The credit report impact is much more severe. In addition, consumers with income or assets will simply not qualify for bankruptcy.
When considering debt negotiation note that debt negotiation should only be performed by a qualified debt settlement attorney. Debt in default has the risk of lawsuit and a debt negotiation company cannot handle a lawsuit and should not be performing consumer debt negotiation. Only a qualified debt negotiation law firm has the legal expertise, experience, and licensing to handle debt negotiation and the legal advising that goes along with it.