Credit Card Debt Negotiations
Discover The Real Advantages Of A Credit Card Debt Negotiation Program
Credit card debt negotiations are a popular debt reduction strategy in situations where the debt is long overdue, and it's clear the debtor cannot afford to pay. Through negotiation the creditor and the debtor both reach an agreement that sets achievable terms for repayment.
It's much better for either side than an uncompromising no-win situation. But, the settlement is never ideal. The creditor often agrees to accept less than the total amount of the original debt, and the debtor's interest rate may or may not be lowered. Each agreement is unique to the circumstances. There is no set pattern.
Advantages For DebtorsThe debtor gains obvious advantages. As soon as the agreement is signed by both parties, potential legal action can be averted. He or she will be safe from wage garnishment, asset seizure, property foreclosure, and so on. Moreover, there should be greater peace of mind since the agreement presumably contains terms that the debtor can actually fulfill. What could have been a very unpleasant situation now enters a newer, more hopeful phase.
However, his or her biggest advantage is not the credit card debt reduction, or an adjusted monthly payment, but it's the opportunity to avoid declaring personal bankruptcy. Far from being the easy way out as some mistakenly suppose, bankruptcy can ruin your credit for up to ten years and tarnish your reputation.
Mortgage loans after bankruptcy will be almost impossible to get. And if a car loan can be obtained, its interest rate will be less than favorable.
You will be unable to get credit cards after bankruptcy, except for the prepaid variety or those with extremely high interest reflecting the perceived risk. And nowadays, not having a credit card is a tremendous disadvantage. Online shopping, hotel reservations, car rentals, and so on all depend on having a credit card for making payments.
Bankruptcy should only be considered as a last resort. A negotiated debt settlement is ALWAYS the better option.
Should I File Bankruptcy?
Advantages For CreditorsDebt negotiation or settlement also offers real benefits to the creditor. Often, the lender will not receive the total amount hoped for, but if the negotiation agreement lengthens the terms of the original loan, more money can be realized in the long run, even if the rate of interest is set lower. On the other hand, it can happen that the creditor agrees to accept some percentage of the original debt amount. The amount varies, but it can be as low as 50%, though it is often around 75%.
Why would the creditor accept such terms? Well, if it's demonstrated that the debtor truly cannot repay the original amount yet can meet the newly agreed upon terms, and the alternative is to receive nothing should the debtor file bankruptcy, 75% begins to look good.
Or, if the creditor is forced to sue, the high legal costs incurred would significantly diminish any amount awarded. Thus, an agreed upon percentage can be viewed as the best obtainable option for both parties.
Individual Voluntary Agreements (IVA)The UK has a formal structure for credit card debt negotiations. Called Individual Voluntary Agreements or IVAs, settlements are often negotiated with the assistance of Licensed Insolvency Practitioners.
In Canada and the United States, debt counselors, financial advisors, and some lawyers specializing in debt negotiation often perform the same function.
Whereas an IVA is made through the courts in debt negotiation UK-style, Canadian and American debt settlements can consist of a signed letter outlining the terms of the agreement. However, it is best that the creditor writes the agreement. This gives the debtor an agreement that's legally binding; one that can be used as a reference and can offer legal protection should the terms be questioned.
All in all, credit card debt negotiations can be a good, workable option for those wondering how to settle a debt or how to avoid bankruptcy.
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