This a question we are regularly asked. When is the best time to negotiate a debt?
It is important to note that no one likes losing money, this includes credit providers. Having said this credit providers such as banks are in the risk game, this is why they charge interest and interest rates tend to change depending on the level of risk associated to the product offered.
Let’s take a look at a typical home loan, currently interest rates are between 5% to 7%, very low when compared to a credit card or personal loan which can be in the 10% to 20% range.
Why is this? the answer is risk.
With a home loan the lender is somewhat secured by the property itself. This means that if a borrower defaults on the loan the lender has the capacity to gain possession of the security property and sell it in order to recoup their money. This is very different with a credit card or personal loan. If a client defaults on these kind of products the credit provider is often in a very precarious position as they really have no security and therefore no real ability to reclaim their money in the event of default. This is why the interest rates associated to these kind of products are high, they factor loss into the risk profile of the product.
What has all this got to do with debt negotiation I hear you ask.
In order to successfully negotiate and lower debt it must first be pointed out to the credit provider why it would be best for them to accept a lesser payout figure now rather than waiting and trying to pursue the client for all the money at a later date. In the case of a secured product such as a home loan a credit provider is most likely not going to feel as exposed and therefore will most likely be less flexible with regard to a reduced payout.
Debt negotiating is one of the few areas were being behind on a loan can be beneficial. If a credit provider has an unsecured debt that is currently delinquent they are often motivated to resolve the situation and move the account from an un-performing balance sheet, even if that means reducing the payout figure to do so.
Here are a few points that can help with debt negotiation:
1) The debt is in arrears.
2) The credit provider does not know the whereabouts of the client.
3) The client only has access to lump sum for settlement such as a gift from family or friends.
4) The persons situation is about to change such as a loss of job or sickness
5) The person has secured an approval for a refinance however the loan amount is not enough to clear all the creditors completely.
These are only a guide however if your situation falls into anyone of these points you may be off to a good start with negotiating and settling your debts.