Debt negotiators help borrowers who are having trouble repaying their loans. When a person has multiple debts they can often consolidate all of them into a single monthly payment. The idea behind negotiating debt is to come to a solution that provides mutual benefit for the borrower and lender.
Most lenders do not want to take drastic action on their customers because they usually end up losing money. If the borrower is having financial difficulties, it is unlikely they will be able to repay all the costs required to take legal action, for example. Instead, lenders may be willing to negotiate a deal with the borrower in order to get back as much as possible from the loan agreement.
In the same way, most borrowers are not eager to default on their loans or to declare bankruptcy. Such actions will result in a bad credit history that will hamper their ability to obtain credit cards and financing in the future. Like the lenders, they too would like to come to some sort of deal that will allow them to repay their loans in a manner that fits into their budget.
How Debt Negotiators Help
Among the important services that credit professionals can provide by negotiating debt are:
Consolidating loans – The debt negotiator can work with different lenders to arrange a single monthly payment for all their client’s debts. In some instances, this payment goes to the debt consolidation service, which then distributes payments to all the lenders. In this way, debt consolidation reduces the workload on the borrower.
Negotiating lower interest rates – In order to help the borrower afford their monthly payments, the negotiator will try to convince the lenders to lower the interest payments on the debt. The logic here is that the borrower is having financial trouble and can no longer handle the accumulated debt burden. By lowering the interest rate, the borrower will be able to pay as the amount of the monthly payment will also be lower.
Canceling part of debt balance – In addition to lowering interest rates, credit negotiators may also be able to convince creditors to cancel part of the existing balance on the debt. Again, the idea here is to create a situation that the borrower can manage financially. By canceling some of the outstanding debt amount, the borrower can repay the loan faster.
Waiving late fees and other penalties – Many creditors have built-in late fees and penalties that they charge if the borrower is late with their payments. The debt negotiator may be able to waive these fees in order to create a more affordable repayment plan for the borrower.
Handling creditor and collection agency calls – Many debt negotiation services will take care of all phone calls and other communication from lenders and collection agencies once they are able to reach a settlement.
Helping clients avoid bankruptcy – A bankruptcy will have a long-lasting negative impact on the borrower’s credit. They may not be able to purchase a new home or car if they are unable to obtain a loan due to a poor credit history. The credit negotiator will help borrowers arrange for an affordable repayment plan that will assist them in rebuilding their credit record.
Who are the Debt Negotiators?
A debt negotiation service is a third party agency that negotiates with lenders on behalf of the borrower. They typically receive their fees by taking a percentage of the amount saved for their client in the debt settlement. Some agencies are non-profit while others are commercial businesses.
Credit relief services must follow certain laws and regulations passed to protect consumers. The Federal Trade Commission (FTC) is primarily responsible for this type of regulation. For example, a debt relief service may not charge a fee to a borrower until after they have reached a settlement with the lenders. The negotiator must include the fee amount in a written agreement signed by the borrower.
Debt relief services must inform the client of their legal rights and they may not in any way provide them with erroneous or misleading information. They must not attempt to convince the borrower to take any fraudulent actions like creating a false identity.
Do I Qualify for Debt Relief?
Agencies involved in negotiating debt will have their own specific requirements for accepting clients. Generally, the loans involved must be unsecured debt that does not involve any collateral. With secured loans, the lender has the recourse of taking possession of the loan security.
Additionally, the borrower must have demonstrable difficulty making their monthly payments or the negotiations will have little chance of success.