When you get your free debt consolidation quotes, your consolidation company might suggest debt negotiation. We'll explain what this is here and how it differs from traditional debt consolidation.
About Debt Negotiation
In order to give you your free quote on debt consolidation, your prospective consolidation service will likely review your current debt situation to determine how they can best help you. For many, this might mean traditional debt consolidation, where the interest rates on your debts are reduced. For others who have more serious credit problems, the consolidation service might suggest debt negotiation. After you get debt consolidation quotes, your service will help you decide which program is right for you. Usually, debt negotiation is reserved for people who drop out of a consolidation program, are in danger of bankruptcy, and/or are seriously delinquent (more than three months) on their accounts. Debt negotiation can reduce the total amount of your debt by up to 50% in some cases.
How Debt Negotiation Works
The first step of debt negotiation requires you to stop paying your creditors temporarily. This is so your consolidation service can negotiate more successfully with them to reduce your debt. During this time, the service will either require you to make monthly payments to them that will be stored in a special account or they have you set up such an account of your own. Your creditors will deal exclusively with your consolidation service during this period, so you don't have to worry about their calls or contacting them. On average, debt negotiation is able to reduce your total payoff amount by 40%-60%. If you have a high amount of debt, this may be the best option for you after you receive your debt consolidation quotes.
Drawbacks of Debt Negotiation
One thing to consider when you are signing up for your quote on debt consolidation is that debt negotiation typically has much more serious consequences than regular consolidation. Because you stop making payments to your creditors for a time, your credit will suffer because it will appear as if you are delinquent on your accounts. However, once negotiations conclude, your accounts will be marked "paid in full," which will give you the opportunity to begin rebuilding your credit with a fresh start. The damage done to your credit from debt negotiation is not irreparable, especially if you find a good credit repair service. The company that provides your debt consolidation quote can provide you with more information on the downside to debt negotiation. For more knowledge on the subject of debt, have a look through some of the frequently asked questions.