Preparing Yourself for Debt Negotiation and Settlement

Entering debt negotiation and settlement typically brings a large feeling of anxiety initially. Of course, the hope is to gain relief in the end. Whether or not you feel relief, though, depends on how successful you were at negotiating better rates and payments for your existing loans. This negotiation requires thoughtful consideration on your part in order to set goals, prepare documents and ultimately negotiate your settlement terms.

Setting Goals for Settlement

It is impossible to know how to negotiate if you do not have a bottom line. Most borrowers pursuing debt settlement will be taking another loan to do so. Settlement will not help if you cannot afford the new loan any better than you could afford the old loan. You need to decide how much you can afford to pay in your lump sum based on how much you can afford to pay each month toward the debt. Your total debt should never be more than 50 percent of your total income. So, cut your monthly income in half. Subtract all of your other debt payments, including your rent. The remaining sum is how much you can afford to pay toward your settlement debt. Share this with your settlement lender so the lender can determine an appropriate lump sum.

Preparing Necessary Information

If your lender is convinced settlement is the best option to mitigate losses on your loan, the lender will be more likely to work with you. This basically means the lender must think you will default or declare bankruptcy if you do not settle. Lenders rarely recover as much after default as they would in a settlement. To convince your lender of this, you will need documents that show you have a likelihood of default. Start by showing you made your payments effectively when you first took the loan. Then, show you underwent some type of fiscal emergency. Joblessness, returning to school, going through a medical emergency or going through a divorce all show you have a decreased ability to pay. You will need documents to prove these things occurred. In the case of joblessness or illness, the documents should also show the condition may last for some time. For example, you can provide statistics on unemployment in your area or in your industry; if unemployment is very high, it is not likely you will find a new job right away.

Getting on the Road to Recovery

The ultimate goal of settling your debts is recovering from your bad financial situation. You should express this to your debt settlement counselor from the beginning. The counselor should give you strategies in order to prevent very negative results, like huge credit dips, from occurring. Paying off the settlement loan will be your first step to credit recovery. The affect of this payoff will be partially determined by whether the loan is secured, unsecured or has a cosigner. Cosigned loans will not help your credit very much, so avoid this with your new lender. It is best to take an unsecured loan if the ultimate goal is a credit boost. Express this desire with your new lender as well, and avoid putting down collateral.

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