Some Hot Tips on Debt Negotiation

Usually debt negotiation is considered as an alternative to filing for bankruptcy. Because filing bankruptcy is somewhat embarrassing for most, one last attempt to resolve an over-obligated situation is the out most of us would prefer to pursue.

But what is debt consolidation and does it really resolve the problem? Here are some answers to those questions.

First and foremost, select a reputable, experienced company that has skills of negotiation. The company and the person who is assisting you will be the most important ingredient to modifying your existing debts into a new payment program to meet your cash flow budget. If you fail to find a good company and they don’t take your situation to heart, you will be in worse shape.

What a debt counselor actually does is break down how much cash you receive on a monthly basis and create a budget to see how much disposable income you have. From your income they will deduct your living expenses, your house payment, property taxes, homeowners insurance, car loans and any other secured debt payments that you have. They will be working only on the unsecured debts, such as your credit cards. The reason for that is if you file bankruptcy, the unsecured creditors will receive nothing as they will be liquidated out of the bankruptcy.

Therefore, working on the philosophy that receiving something will be better than nothing, what usually happens is the balance is cut in half and a lower interest rate is established on the new balance. The counselor will then work with your disposable cash, which is the amount is left after all your secured loan payments are deducted, and spread them over the amount of unsecured debt that you have. They then contact each unsecured creditor individually, working on your behalf to gain the creditors’ acceptance of the new program. The counselor may even be able to settle the debt with a small amount to pay off in full. It really depends on the company you choose to help you and how skilled the counselor is.

It should be noted that finding a good negotiator and a seasoned company is difficult, so spend the necessary time up front prior to signing an agreement. They should be able to provide references that could prove beneficial. Ask for a least three. There is nothing better than to talk to others that have gone through the process. I am sure this information will be helpful to you before you make your final decision to go into any sort of debt consolidation program.

You should also know that you have to buy into the new program as well. If you agree to the new terms and you don’t meet them you can be taken to court to pay, which would allow your unsecured creditor to garnish your paycheck or checking account for the payment.