Debt Negotiation (also called Debt Settlement) is a process that a greater number of people are running toward  as their unsecured debt keeps piling up. Debt Negotiation is for people who are looking for an alternative to bankruptcy and who live pay check to pay check. There are people who are desperate and are in serious need of debt relief. The best thing about debt negotiation is the consumer can save money on a monthly basis and on average saves about 40%-60% on the principle balance owed as well.

Debt Settlement: also known as debt arbitration, debt negotiation or credit settlement, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.

As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest.

Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. In a New York Times article Cyndi Geerdes, an associate professor at the University of Illinois Law School, states “Done correctly, (debt settlement) can absolutely help people”.

Birmbaum, Jane (February 9, 2008). “Debt Relief Can Cause Headaches of Its Own”. The New York Times.

How does Debt Negotiation (Settlement) work?

Once enrolled into a debt negotiations program you will stop making monthly payments to your creditors. At this point, most creditors will start escalated collection efforts by using scare tactics. One preliminary strategy is to continually make large volumes of calls to your residence, cell phones and sometimes even place of work in order to aggressively peruse collecting funds from you. Meanwhile, you will deposit money that once went towards paying monthly minimums to your creditors into a Special Purpose Savings Account. This Special Purpose Savings Account prevents any access to your savings by creditors so that your funds are safe from being withheld.

During this process of accumulation, the debt negotiation company is handling your creditor calls and negotiating with your creditors for a lower payoff amount, typically around the 40-50% range. While you are accumulating money (essentially used as bargaining power) into this account, the debt negotiation company will start the negotiation process with your creditors and beginning working out a deal on your behalf for less than what you owe. After a negotiator and creditor come up with a settlement proposal you approve, upon being resolved, your creditor account will be considered paid in full.

One negative effect of debt settlement programs is that your credit score will go down but if you are qualified for debt settlement in the first place, you would have probably already experienced negative damage to your credit. The most important facts one has to consider is how much money you are potentially saving compared to paying the principal debt and accrued interest in full versus the adverse affects on your financial history or potential bankruptcy. Also, please be aware that not all creditors are open to negotiate a settlement (although these are rare), if they do not, extended periods of leaving debts unpaid can result in a court summons. There can also be tax implications to accepting settlements for less than the amount due. The IRS could potentially file a settled debt as earned income because of the large difference in the settled amount compared to the total debt load. However, like anything, there are always ways around these complications. When you choose a good debt negotiation company such as Eagle One Debt Solutions you can trust that they will have procedures to protect you in such cases.