Pros And Cons Of Debt Negotiation

Negotiating a debt settlement may be the only way out of your current debt situation. Paying off your debt with your current interest rate can be almost impossible. However, negotiating new payment terms will not happen without consequence. Pursuing a credit card debt negotiation program must be done with a thorough understanding of the pros and cons. You need to learn about the benefits of negotiating with your creditors. Only then will you know if it is right for you.pros and cons of debt negotiation

Debt Negotiation Con #1 – Taxes

Negotiating your debt for less seems like a great plan for anyone who needs to get out of debt faster. Not having to pay your bills is like getting free money. Everyone would like to get some free money every so often.

Not so fast. The IRS is going to tax most forgiven debt just like it was income. You could be paying taxes on $10,000, $20,000 or even more. It is not uncommon to have as much as $100,000 of medical bills or discharged student loans due to medical hardship.

You are basically trading in one debt for another debt. Tax debt is usually harder to settle than other forms of debt if you cannot pay. Typically, there is no statute of limitations on how long the IRS can take you to court. However, if you are insolvent at the time of settlement, you may be able to avoid paying taxes up to the amount you are insolvent. Talk to a tax attorney and learn about a 1099-C, taxes and debt settlement.

Debt Negotiation Con #2 – You May Lose Your Credit Card Access

Forget about getting new lines of credit in the near future. In fact, your current lines of credit may be frozen. This may be done as a condition of modifying your loan terms.

A note will be placed on your credit report reflecting your current situation. Lenders will most likely not give you a good interest rate. You may have to look into bad credit loans to secure financing in the short-term.

Debt Negotiation Con #3 – You Risk Falling For A Scam

Most debt negotiation services don’t work in your best interest. The creditors want to see as much money as possible. The service negotiating on your behalf wants to see payment before your accounts are settled. You get hurt from both sides.

For example, you may have $20,000 in credit card debt. Your negotiation service may charge you as much as $1,000 just to enroll. Then, the negotiator only lowers your debt to $15,000 when that debt could have been lowered to $10,000. Finally, your negotiation service takes another 10 percent or more as a settlement fee.

Debt Negotiation Pro #1 – Get Out Of Debt

Getting out of debt should be your number one priority. Lowering your debt burden allows you to finally start to get ahead with your finances. The ability to save for retirement trumps whatever legitimate negotiation fees you may need to pay.

Paying your debts also allows you to get rid of those creditor calls. You may feel overwhelmed because of the amount of creditor calls you get. Stress can cause health problems which only increase your chances of adding new debt.

Debt Negotiation Pro #2 – You Don’t Have To Do It Yourself

Finding a legitimate debt relief company allows you to get help when you need it most. Your creditors may not budge when it comes to your debt balance. Getting a professional to help you out usually brings your creditors to the table.

You may feel guilty about asking for a settlement. However, you should understand that you have a legal right to do so. Having someone negotiate on your behalf may make it easier to speak up in defense of your rights as a consumer. Talking to your creditors is the only way to get out of your debt mess.

Debt Negotiation Pro #3 – Start Repairing Your Credit Immediately

It is true that you may have lines of credit frozen after a debt negotiation. You should also realize there are other ways to begin fixing your credit.

The first step is to get any type of loan you can get your hands on. Even a payday loan may be helpful in this situation. Paying back that balance on time establishes trust in your ability to pay bills again.

Make sure the note about using debt negotiation services is removed as soon as your debt is paid off. Allowing that note to linger can hamper your ability to get credit even after your accounts are fully paid. Take your effort a step further by asking your creditors to list your accounts as current while in repayment.

Debt negotiation may not be right for everyone. You need to look at the pros and cons before making any sort of decision. Call us today to talk to a debt relief professional. Filling out the form will provide more information about how debt negotiation can help you.