Negotiating Debt Settlement: Be Your Own Advocate

Negotiating debt settlement yourself instead of going through an agency presents many benefits. The primary benefit is reduced cost; you will not have to pay any agency fees nor negotiation fees. Your credit score may also go through unharmed, which is not typical when you have an agency do the work for you. In order to realize these benefits, though, you must be armed with good information and be prepared to work for a settlement.

Negotiating the Lowest Settlement

It is rare for a lender to settle for anything less than the remaining principal sum on your loan. A lender may excuse a portion of interest or finance charges if you can pay down the debt, but forgiving principal represents an actual loss to the lender instead of just a reduction in profit. In order to get the lowest settlement, you must show the price you are offering is competitive.One way to do this is to show the loss of value in an asset you have placed as collateral. For example, if you have a mortgage, the home serves as collateral on the loan. The lender does not have a large incentive to settle if the lender can simply foreclose on the home to recover in full. If the home has lost substantial value, though, your settlement offer may actually be a better deal than the possibility of foreclosure.

Proving Loss Mitigation

The ability for a lender to save money through settlement is generally referred to as "loss mitigation." The lender will be more likely to accept your deal if you can prove loss mitigation. This is all a settlement agent would do in the same position. The agent would have information, though, like comparable real estate sales in the area, to show the potential loss through foreclosure. You will need to prepare information in order to convince a lender your option is viable. This takes a little bit of time, but you will ultimately save much more money doing this yourself than paying an agent for the exact same service.

Protecting Your Credit Score

Settlement agents often tell you they have your best interest in mind. This may be true when it comes to settling the debt, because most charge a fee based on how successfully they reduce the price of your loans. When it comes to your credit score, though, many agents are unconcerned with the impact of the settlement. When you negotiate your own settlement, you can actively protect your credit. For example, you can ask a lender to report your loan successfully paid to the credit bureaus instead of just "closed." This distinction prevents the possibility a future lender will know you settled the debt. If you take a loan from a settlement company to move forward, simply having this company's name on your financial record can be a hurdle to getting your next loan. Instead, you can take a personal loan for the sum you need from a credible bank or lender. This will reduce the impact on your score, protecting your credit in the future.


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