“It’s unreasonable to ask for more than 75 percent of the balance to be forgiven,” says Bruce McClary of the National Foundation for Credit Counseling.
#AskFarnoosh: Negotiating Debt Payments
For this month’s #AskFarnoosh over on the Mint blog, Mark asks:
I’m looking to settle (close out) some debts with lump sum payments. Are there any tips to negotiate these transactions to work a little more in my favor?
Debt got you down?
Overextended borrowers that don’t see a light at the end of the tunnel may be relieved to know that they can negotiate to pay a fraction of what they owe to creditors. It’s called debt settlement. But the process comes with caveats.
If you choose to work through a debt settlement firm, do your homework. Yes, they will negotiate on your behalf, but you may end up paying hefty fees for the service.
Want to go it alone? It’s doable, but it helps to be strategic, says Bruce McClary of the National Foundation for Credit Counseling, a non-profit that negotiates better borrowing rates and payment plans for clients through a debt management program.
For the fastest deal, it’s best to save up and offer a lump sum payment to close out the debt once and for all. “And be prepared to have a discussion about the financial reasons why a lump sum settlement is going to be best for you and the creditor,” says Bruce.
No matter how you choose to proceed, know that the record of “settling” the debt will remain on your credit report for typically seven years. It may not impact your credit score, but the report could raise flags to future lenders and qualifying for a new loan or credit card could be challenging.
That said, if this is your best bet for becoming debt free, head on over to the Mint blog where I have some more tips there to help ensure the settlement goes well.