Debt negotiation is one tool for getting out of debt that many people have considered at one time or another. The biggest problem with pursuing a debt negotiation is not knowing the benefits and risks of the situation. Before entering into a negotiation over your debt, understand that there are some good and bad aspects of debt negotiation.
Pros and Cons
There are plenty of benefits to debt negotiation. First, negotiating a lower debt payment with creditors can keep you out of bankruptcy. By directly arranging a payment plan that you can afford, you will be able to get out of debt without busting your budget or ending up in financial insolvency. Second, negotiating your debts can immediately halt your delinquent account standings. Once you begin to make timely payments according to your plan, your credit will see improvement as you work to eliminate your debts altogether. Last, debt negotiation is often a simpler process than other forms of debt relief once you establish an agreement.
Some of the risks involved with debt negotiation include the use of third party companies. Although there are plenty of legitimate debt negotiation services, there are also numerous scams circulating that can end up costing you far more in the end. Finding legitimate debt negotiation help should be done alone, with the help of an attorney or accredited company only. Second, debt negotiation could leave you responsible for tax bill on any debt that is cancelled or waived by the creditor. If your creditor forgives a portion of your debt, you will be liable for reporting that amount as income to the IRS. Last, debt negotiation can make securing credit in the future more challenging, especially if you settle for less than what is owed. Future creditors prefer to see you repay your debts rather than have them eliminated, which is why asking for a lower payment not principal debt amount is best in a negotiation.