Debt Negotiation and Settlement
This article talks about what I guess you might call the second-to-last piece of the bad debt puzzle. In the first couple of articles of this series we talked about getting sued and either getting a lawyer or representing and defending yourself. We got you started on that. Then we moved on to credit repair. In a way, maybe, that was taking things out of order, but everybody being sued for debt will eventually need to fix his or her credit report, and probably for many things other than just the lawsuit.
We discussed the ethics and morality of credit repair because many people we’ve talked to over the years have been burdened by their ethical and moral concerns – guilt, really. The debt collectors encourage guilt because it makes people easy to handle. Tomorrow we’ll move on to something a little more “esoteric” you might say: lifestyle.
But today, as I say, we’re going to discuss debt negotiation.
Pretty much everybody knows what debt negotiation is, at least in theory. It goes like this. Obviously there’s somebody who says you owe a bunch of money, you negotiate, and you end up paying either less than or none of what you supposedly owe. That’s the view from a mile up. Sweet, isn’t it?
It sounds like free money, but it really isn’t. If you think of it as an opportunity for something free, you will not be able to do it – you’ll be left wondering what went wrong as your financial security goes out the window. Instead, debt negotiation and settlement is cross between a hard-nosed, back-room negotiation and a game of “chicken.”
So What Are You Negotiating? What Are You Settling?
You know, it’s interesting that people rarely ask what debt negotiation is all about – what are you “giving up?” What are they getting in return for the large amounts of debt you hope for them to give up? Suppose you owe a credit card company $20,000 and you have been making the minimum payments most of the time – but sometimes you can’t, so they have hit you with a bunch of fees, and you’re watching the debt pile up at an incredible rate. What do they get if they agree to take a single payment of $1,500?
It feels like you’re stuck – there may be no way you can make payments that would significantly reduce that debt. So what do you have to negotiate with? A whole lot of “nothing.”
You have risk and the difficulty of collection. In other words, you have the fact that unless you agree to pay and really try to do it, they will likely get nothing at all – or will get much less than they could.
That doesn’t sound like much, does it? And yet it is much more powerful than you might suppose. Anybody you owe a lot of money to is feeling the pinch. Even a large credit card bank, which doesn’t need your money for its survival by any means, is watching that debt mount and realizing that every time it gets higher, you get less likely to pay it. At the bottom of your options may be the possibility of bankruptcy, but they know that long before that you will simply stop paying and dare them to sue you.
In essence, that it what makes debt negotiation work. You stop paying them and dare them to sue you – and then you offer to pay them again, only much less. Sounds crazy, doesn’t it? But it works if you take it seriously and don’t think of it as some sort of gold mine or a way to “get away” with something. Instead, think of it as a significant part of a serious turn-around in your life. It has several costs – you should have no doubt about that, and it is something you do when there are no better choices available. There’s a chance that withholding payments will result in your being sued, and it almost certainly will result in at least a temporary trashing of your credit report. How you manage these risks and costs will determine, more than anything else, how well you do in negotiation.
There are ways to make it work much better than others, though. There are things you can do to manage your risks of being sued, and when the negotiations actually begin, a few techniques that can help. The main thing about debt negotiation and settlement, however, is that it, like other kinds of negotiation, is much less about negotiation than positioning. People only give you what you want because they believe it is the best outcome for them, too – the question is, how to do you give them that feeling when you’re asking to pay ten cents on the dollar of debt? And how do you make the risks to yourself “acceptable?”
How you answer those questions will determine how good a deal you get from your creditors.