What is Debt Consolidation Negotiation?
Debt consolidation is the process of combining high-interest debts into one new loan. The debts you can consolidate include credit card or store account debts. By doing this, you can better manage your debts by paying one monthly payment.
When you and your creditor discuss strategies to lower your interest rate or change terms of your payment, this is known as debt consolidation negotiation.
Read the rest of this article to learn about what debt consolidation negotiation includes, how to negotiate successfully, and when you should consult with a lawyer for assistance.
What are Debt Consolidation Options?
Before you negotiate your debt with creditors, you will want to consider debt consolidation options to find the best one for your financial status. These include the following.
- New credit card. Transfer credit card balances onto a new card with a low interest rate to help you pay off your debt faster. However, this interest rate reduction only lasts for an introductory period.
- Unsecured personal loan. If you take out a personal loan with low interest and fixed payments, your repayment terms can be simplified. This might also reduce the total interest you have to pay.
- Home equity loan. You can use equity in your home to secure credit, which could provide a lower interest rate. The risk is that if you don’t pay back the loan on time, you risk home foreclosure.
- Debt management plan. This is a plan in which a non-profit credit counseling agency negotiates lower interest rates and monthly payments with creditors, without you having to take out new debt.
To choose the best one for you, calculate their total costs. This should include any fees, interest, and how long the loan term will be. Remember, sometimes when a lower monthly payment is available, this could bump up the interest you have to pay.
How Should You Negotiate Debt Consolidation?
When negotiating debt consolidation, or getting approved for it, you should bear some important things in mind.
Prove Your Steady Income
Since debt consolidation means you have to make monthly payments, you need to show proof that you have a stable source of income. For example, with debt consolidation loans, you’ll have to be creditworthy and lenders will consider your credit score.
Note that when choosing the debt management option, you won’t have to take out a loan or have a high credit score, as the agency will negotiate directly with your creditors.
Suggest Paying a Lump Sum
If you’re falling behind with your payments, you could try to negotiate with your current creditors to reduce the total amount owed before you consolidate your debts. This could involve paying a lump sum.
Understand Your Debts
You can’t get the best terms for your new repayment plan if you don’t have clarity about your debts. Make a list of all your current debts with their minimum payments and interest rates. You should also use a free service to discover your credit score as this will be considered by lenders.
Then, consider your debts in light of your budget and earnings. This will help you to calculate what payments you can realistically make every month without landing in financial hardship.
Negotiate Your New Loan
Once you have clarity on your debts, you can negotiate the new loan. Here are some ways in which to do this.
- Reduce origination fees. These are a common type of fee that can be negotiated. Your lender will be more likely to lower or waive your fees if you have a strong credit profile.
- Lower your interest rate. A good way to do this is to get three quotes from other lenders and use the one with the lowest interest rate to negotiate with your lender to see if they can beat it.
- Consider a shorter loan term. It can help you to make the most of a lower interest rate.
Lower Your Fees
Some fees can be negotiated, such as origination and balance transfer fees. You should ask your lender to reduce or waive them. For balance transfer fees, credit cards sometimes charge a small percentage of the transferred balance, but they might be waived for promotional periods.
Avoid Stopping Payments
Some debt consolidators you work with might advise you to stop making payments because your debts will be combined into one. This is highly risky because creditors are likely to charge you fees as soon as payments are stopped, which can quickly add up.
How Can a Lawyer Help You with Debt Consolidation Negotiations?
It’s not always required to hire a lawyer for debt consolidation negotiation, but if you're dealing with a complex settlement or risk of litigation, it’s advisable.
If you feel you need help from a legal professional to navigate the debt consolidation process, you should hire a lawyer. They will help you in the following ways:
- They’ll assess your financial situation and consider the best consolidation option for your needs.
- They’ll discuss all the pros and cons (including risks) of the different consolidation options.
- They’ll help you negotiate with creditors, such as to reduce interest rates or fees.
- They’ll ensure that your debt consolidation agreement doesn’t contain any vague or misleading information that could put you at risk.
- They’ll help you consider other options if debt consolidation isn’t a promising option for you, such as debt settlement.
Where Can You Hire a Lawyer for Debt Consolidation Negotiations?
If you require assistance with the debt consolidation process, you should hire a lawyer from ContractsCounsel, one of the biggest online legal marketplaces that connects clients with lawyers who have been vetted on the platform.
Lawyers on the platform are available for your legal concerns and have years of experience in assisting clients with debt consolidation negotiations. They’ll assist you with their strong negotiation skills to help you achieve a favorable outcome and regain control of your finances.
