Debt Negotiation Programs Vary in Effectiveness |
By Jena Collier on December 27, 2010
.jpg.aspx?width=75&height=75) Debt negotiation programs can come in the form of interest rate reduction programs, debt consolidation programs, and debt settlement programs. Choosing which option is best for you depends on how far into debt you are, how much the option affects your credit score and how you prefer to organize your debt.
Interest Rate Reduction Programs
You can renegotiate your interest rate with your credit card company simply by calling their customer service department and being a little tenacious. When calling the company, present your case as though you’re going to move to another company if they don’t comply. Have your latest statement as well as other offers you’ve gotten in the mail in front of you and tell them the exact rate you need to have to stop you from accepting a debt transfer option from another company. Most likely, you won’t get a rate as low as you asked, but providing a specific number creates a negotiation point. This approach works best if you’ve been making regular payments (i.e. you’re generating income for the company) but are having some trouble paying as much as you’d like to at the current interest rate.
Debt Consolidation Programs
Debt consolidation programs combine separate debt payment bills into one monthly bill, and often times extends the repayment period of the new combined debt. They do not increase or decrease your debt—you will still owe the same amount of money. However, having all your payments in one bill may simplify life if you feel overwhelmed keeping up with multiple sources of debt.
Some things to remember: the payment of one monthly bill may deceive you into thinking you have less debt than you used to, but you must keep in perspective that the amount of debt you have has not changed. Secondly, the overall amount of interest you pay may be higher than with multiple bills. It may be worth it, though, if lesser, longer term payments free up your finances in the present.
Debt Settlement Programs
Debt settlement programs allow those who are seriously behind in their payments to pay a lump sum of money in exchange for a 20%-80% reduction in their debts. Credit card companies will only offer this to those who have stopped making payments for three to six months in hopes of collecting some money rather than none in case of bankruptcy. This option can work for those with no other option but bankruptcy. However, it is also very risky and is one of the most damaging options for your credit score.
These options can be combined into something called a debt settlement program, which do not negotiate interest rate reductions, debt consolidation, debt settlement, or work out a payment schedule with your creditors in any effective manner. Try to look for nonprofits to work out your program, as some debt settlement companies can be untrustworthy or even fraudulent. |
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