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Thinking about a debt reduction negotiation?
By David Pilley on June 10, 2011

808992_84323190-(1).jpgWell, it’s been a little over five months since Christmas, and now is a good time to talk about debt reduction negotiation. Why now? Chances are you may have opened a new line of credit during the holiday season to buy some gifts for your friends and family. Chances are you might also be late on payments. After six months of late or missed payments, your creditor may sell the debt to a collector. You will then get a ton of phone calls about settling the debt. So, right now, you’re not just one missed payment in the hole. You’re several months in debt. You have the possibility of home foreclosure or filing for bankruptcy, and you really don’t want those phone calls running up another bill. Now would be the time to consider debt negotiation.
Your creditor really does not want to sell your debt to a collector. Why not? Bill collectors often purchases debts for a few pennies on the dollar, so a credit card debt of a few thousand will be bought for just a few hundred dollars. Your creditor will take a big loss in this situation, so the perfect time for debt negotiation is the window right before the debt is sold, between three and six months of missed payments.

Whether you turn to a third party to negotiate or you negotiate directly with the creditor is completely your decision. The negotiation will be done primarily over the phone, and if you’re like me and you don’t like talking to someone you can’t see, hiring a professional would be your best option. Always look for accreditation, experience, and references to find the right company for you.

You can’t pay all of the debt, and your creditor is not expecting to receive all of it; those are given. You can use this to your advantage when you determine a final amount to pay. Your final goal is somewhere between a third and a half of the original amount, but you should start the offer low at 25%. There’s a good possibility 25% would be more than what the creditor may get if he/she sells it to a bill collector, so he/she might seem just as desperate as you.

Finally, you should be familiar with the repayment rules. Don’t pay anything until you get the plan in print. If it is a lump-sum payment, you must be able to make the payment when it is due. Also be aware that the amount that was forgiven in the negotiation (the amount you don’t have to pay) is considered taxable income and, depending on your total income, you will have to pay taxes on it. If you have a few missed payments since Christmas, now is the time to consider negotiating a debt reduction.
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