It is a very stressful situation when your income has shrunk and your payments stay the same. When you get into this type of situation, debt negotiation may be a solution for you.
If you find a company that will take you as a client, immediately the phone calls stop. This in itself is a stress reliever. The next step will be the negotiations. Typically your balance owed on your credit cards or unsecured debts will be cut in half. A lower interest rate will be assessed and thus a smaller payment. The term is usually short, like 36-48 months.
Don’t get the idea that your credit rating will improve. After all, you were behind therefore your credit rating has already been affected. However, making your monthly payments on the reconstructed debt will eventually improve your score over time. Just make sure that you pay on time when you commit to the rescheduled payment program. Take an extra part-time job if you can find one, or think of something that you can do to make extra money and pay them off as quickly as possible if you want your credit to bounce back.
If you have a good negotiator, and hopefully you do your research before you contract with one, make sure that you stipulate that if you agree to the revised repayment program you want your credit restored and not a charge-off reflected. After all, the unsecured creditor will be charging off 50% of your balance. If this shows on your credit bureau report, it will stay there for approximately 7 years. It doesn’t hurt to ask, right?
In addition, make sure you check with your bookkeeper or accountant that the amount that is charged off (the other half of the balance) is not taxable. Whatever you save on modifying your debts may have tax consequences. So check it out.
These programs can really benefit you if you are in trouble and are a lot less expensive than an attorney. Keep in mind that each individual creditor needs to buy into the program which is not an easy task. This is why a skilled negotiator is very important indeed and a lot cheaper than an attorney.
After the process and 36-48 months thereafter, all will be done. It is then that you can start re-establishing your credit. Just remember the lesson learned and what you had to go through to pay off these creditors.
However, if this doesn’t work out for you, you always have the option of filing bankruptcy. So donít buy into a program that doesnít help you and where you canít meet the new payments. Debt negotiations can work if you can afford a new payment program. If you canít, donít agree that you can or you will be in a worse situation. Remember you always have the option of filing bankruptcy.
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