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Debt Negotiation: Quietly Settle Your Debt

By: Michael Millington

Has there ever been a time when you wished you could just talk to someone who owed you money, or to someone you owed money to, and tried to make a quiet deal in order to better settle a debt and get some debt relief? For most of us, the answer might be yes, though it doesn’t actually happen near as often as we’d like it to. Maybe the problem is that many of us simply don’t try a practice known as debt negotiation, where people talk out debt and try to settle for a mutually agreeable amount.


Considering Debt Negotiation?

The first thing we need to do when considering debt negotiation is change our perceptions of credit providers. Creditors are not all rich, old men who have no regard for the people they give credit to. No, creditors are often businesses, holding debt in exchange for profit in the form of interest. If there’s a clear business case for reducing the amount of that debt, then many businesses will follow up on it. They would do so because it’s in their best interests (and also in yours) to do so.


Next, consider the potential avenues for debt negotiation. There are generally two ways to go about it: do it yourself or hire someone else to act as your agent in a debt negotiation—some even call it debt settlement—process. That someone can be a lawyer or a debt settlement firm. Watch out for some debt settlement companies that may look to scam you out of your money.


How To Avoid Debt Relief Scams

The potential issues to watch for when dealing with debt settlement companies involve fees to open a file to begin with, monthly fees for services, or charging based on a percentage of money saved through the negotiation process. Additionally, watch out for unusually strong guarantees that are a good sign of a scam in progress: a guarantee of huge settlements, “pennies on the dollar”, or that some debts will be outright eliminated. Creditors are certainly free to negotiate—it is their debt, after all—but they are under no obligation to accept any negotiation process or offer to negotiate.


One thing to watch for is any suggestion that creditors never sue debtors over non-payment. Many will, and many do. Any notion that a company can remove negative information from a credit report that happens to be accurate is also a false promise. No one can remove this kind of information. Even if a debt is negotiated or settled, it’s important to note that if a debt is reduced or charged off it can be treated as taxable income, which means a potential note of sticker shock when taxes come due.


How To Negotiate Your Debts

Negotiating debt with creditors can be as simple as sending a letter, making a phone call, or going in person to speak to someone with authority over the debts. Consider going in with the intent to pay a lump sum up front in exchange for a reduction of the amount, or a longer term with lower payments. These things are reasonable, and may find a receptive audience.

In the end, businesses don’t want to lose the amount invested in the debt, but might be willing to lose a small portion of it in exchange for getting most of it. Very few businesses actually win when someone declares bankruptcy, so avoiding bankruptcy and finding alternatives to bankruptcy become very worthwhile tasks. Those who talk to their creditors early on, and remember that the creditor views debt as a business venture, are most likely to come out ahead in the end.


Written by Steve Anderson