What is Debt Negotiation? A Look at This Technique to Get Out of Debt

One of the techniques used to get out of debt is debt negotiation. Indeed, it is a debt technique that is getting a lot more play lately in television and radio ads. This is because with debt negotiation (also called debt settlement), the promises are that you can pay less than you owe. And this is usually true. But don't think for a second you haven't already paid back what you borrowed -- and then some.

How professional debt negotiation works

When you call a professional to help you with debt settlement, it works in a way that feels similar to debt consolidation. You stop paying your creditors, and the company you hire is supposed to do it for you. You send money to the company. In the case of debt negotiation, your money goes into some sort of an account. You make one monthly payment.

But your creditors aren't being paid. You stop paying your creditors, and let them know that you are referring payment to the debt settlement company. The debt negotiation works to get the creditor to agree on an amount to close the account and call it "even." This means that the creditor isn't being paid during this process. (Note: Your credit will be dinged. If you have multiple creditors, it will be repeatedly dinged. Debt negotiation will damage your credit in a way that will take six months to a year -- or more -- to fix.)

When a debt settlement is agreed upon, the debt negotiation company takes money from the account you have been paying into each month to pay off what the amount. The company moves on to other creditors.

Why debt settlement works

Creditors (especially credit card companies) will accept debt settlement because they have already usually made money off of you. If you have high credit card balances, and you have spent years only paying the minimum, or just above it, chances are that company has already recovered the entire amount borrowed plus interest. This means that the company isn't really losing money when it settles with you. It just won't make as much. But the settlement allows the company to get one last bit of your money -- something that may not happen if you declare bankruptcy.

Debt negotiation on your own

Also, you should note that it is possible to do debt negotiation on your own. However, it can be time-consuming and difficult. You might have to argue longer. But it is possible in some cases to work with the credit card company to get a different payment plan, or to get a lower interest rate.