If you’re looking to shed some of your excess debts, negotiating with your creditors can be a good option to go with. Not only will you rid yourself of those irritating collections calls, but you’ll make it easier to continue to erase your debts in the future. Of course, negotiating your debts down won’t be all daisies and roses so you should count on at least a few difficulties along the way. There are a number of common mistakes in debt negotiations that you could make that would put you in a very tight spot. As long as you know what not to do when negotiating, you increase your chances of getting the results you desire most. These are the most common mistakes in debt negotiations that could get you into a comprising position:
Avoid These Situations!
· Do You Know If Your Debts Are Secured Or Unsecured?
There are two different types of debts: the kinds that are secured by the creditors and the kinds that are unsecured by the creditors. Creditors that you owe secured debts to have a vested interest in the asset. Assets like cars, boats and land will be seized from you if you don’t continue to pay down your debts. Creditors with unsecured debts cannot come to your home to take back merchandise that you’ve purchased from them. Unsecured creditors are most usually department stores like a Lowe’s, Target or Wal-Mart. There are instances when an unsecured creditor will threaten the debtor with the prospect of coming to retrieve merchandise by saying that they’re secured creditors. This is why it’s important for you to know the difference between the two different types of debt.
· Do You Know The Strengths Of Your Creditor?
A secured creditor has a strength in the fact that they can come and seize assets from you if you haven’t been keeping up with payments. Although unsecured creditors can’t come and retrieve items from you, they too have their strengths. They have the right to call you and send you letters. Even once you begin the process of negotiation, creditors might continue to call you and demand that you make payment, but you have to make sure you ignore their requests until all negotiations have been completed. They might even sue you for breach of contract or start a lawsuit while negotiations are in the pending state. If they happen to win that lawsuit against you, your wages can be garnished or they might levy your bank accounts. If this were to happen, you should stop having payments directly deposited to your accounts. You’ll want to keep your balances as low as possible too. It’s all too easy to make one of these common mistakes in debt negotiations.
· Do You Know The Weaknesses Of Your Creditor?
Both secured and unsecured creditors might be subjected to collection laws. If you’re working with a debt collection agency, they have to follow the Fair Debt Collection Practices Act. This act places limits on the methods they can use to collect debts. Even though creditors are not subjected to the FDCPA, quite a number of states have limits on the methods creditors can use to collect payments as well. Creditors view suing as a last resort because it costs them so much to do so and lawsuits don’t guarantee that they’ll make any money at all in the process. Unsecured creditors can’t do much of anything. On very rare occasion, they might be able to repossess property but if a debtor files for bankruptcy, they usually get none of the money they’re owed.
· Are You Using The Right Money?
Cash will always be the best tool to utilize during debt negotiations. Creditors are typically quicker to negotiate when a debtor can transfer money over to them immediately. They’re also more willing to settle for a lower amount in these kinds of cases. Another one of the most common mistakes in debt negotiations is when a debtor tries to use equity in a secured asset to cover an unsecured debt. If you can’t cover the costs of increased mortgage or car payments, you could end up losing them for a debt that wasn’t all that important to begin with. The risks strongly outweigh the rewards in this case. Paying off your debts with retirement savings is also not very advisable. You’ll end up paying taxes and withdrawal fees on the transaction that aren’t really worth the work.
· Are You Paying Too Much?
Most times, unsecured creditors will settle for whatever they can get, even if that’s only pennies on the dollar. One of the most common mistakes in debt negotiations happens when a debtor thinks they won’t be able to pay the amount that makes them most comfortable. Start your negotiations at half of what you owe or less.
It’s too easy to make the most common mistakes in debt negotiations when you’re not well informed. Avoid these common mistakes in debt negotiations at all costs!