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Debt Negotiation Strategy

July 21st, 2007 · No Comments

The list of questions below will help you decide whether or not you should consider debt negotiation.

Do you have a legitimate financial hardship condition?
This will usually take the form of loss of income, medical condition, death of a family member, divorce or separation, loss of child support payments, or some other serious event that caused a severe financial setback. It doesn’t always have to be drastic, but there should be an identifiable circumstance (or set of circumstances) that got you into trouble.

Are you committed to avoiding bankruptcy?
Just about every debtor who tries to negotiate with a bank threatens bankruptcy. A proper debt negotiation strategy will take the opposite position, by promising that bankruptcy will not be filed if the creditor agrees to a workable arrangement. This promise is essential to the process.

Do you owe more than $10,000 in unsecured debt?
If your debt level is much below that, it becomes unrealistic to apply negotiation strategies at the aggressive level we’ve been discussing. Discounts can still be obtained and favorable arrangements made, but frankly, major reductions in debt are much more difficult to obtain. A level of $20,000 to $50,000 is more typical, although there is no fixed rule. It also depends on the exact nature of the debt.

Are your debts primarily from credit cards?
The negotiation strategy described above works well for a variety of debts, but the handsdown winner is credit card debt. The steepest discounts and greatest success can be obtained with credit card accounts. Department store charge cards, financing contracts, and miscellaneous bills can also be negotiated, but with less predictable results. Medical bills are often negotiable, depending on the background of the case, usually with good results. Student loans cannot be negotiated (since these are Federal loans, Uncle Sam can dip his hands into your tax refund to collect the balance). Auto loans can be refinanced, but generally not reduced. Mortgages can be rescued from foreclosure with a variety of techniques, but of course you’ll still be on the hook for full value.

Is your monthly budget up to the job?
All the best intentions in the world won’t help if you have nothing to offer your creditors. A good rule of thumb is that your monthly budget should be around $150-$200 for every $10,000 of debt. So if you owe, say, $30,000 total, then your monthly budget should be around $450-$600.

Do you have additional resources to work with?
Even if you can only manage a small monthly amount toward debt reduction, are there other resources at your disposal? Examples include cash-value insurance policies, borrowing from family, or even the sale of unneeded household items. Is there other property you could sell to raise capital?

If you are in a condition of financial hardship, committed to avoiding bankruptcy, owe more than $7,500 of credit card debt, and have some resources to work with, then you should definitely give serious consideration to the debt negotiation strategy.

Category: Credit