When people hear the phrase “debt negotiation,” they may make incorrect assumptions about how debts are often handled.
The Debt Management Plan (DMP) that results from some credit counseling sessions is a kind of debt negotiation that does not involve a one-on-one negotiation with a creditor. And that’s by design.
When a person gets a debt settlement, it’s usually dealing with a very large debt, and the “creditor” is usually a collection agency or other debt buyer. The amount of money involved and the fact that the debt isn’t held by the original creditor can mean that a settlement might make more sense. ( But BE CAREFUL when considering debt settlements-see 6 Things to Consider Before Using a Professional Settlement Negotiator).
With credit counseling, the debt negotiation takes place before the client even comes in for counseling. Because credit counselors help hundreds of thousands of consumers all over the country, there isn’t time or manpower for creditors to negotiate with each debtor who seeks counseling.
Credit Counseling and Debt Negotiation
Credit counseling agencies and creditors work together to create a matrix of concessions and policies that go into a Debt Management Plan. Credit counselors take the debts that clients bring in and use this pre-negotiated matrix to determine what the client’s new payments will be and what concessions the creditor will make to help them repay the debt successfully.
There’s nothing nefarious about this method of debt negotiation. It’s the most fair and efficient way to do it, and creditors and credit counselors have been working together successfully to help debtors for over 50 years now.
Some critics seem to think that credit counselors should pick up the phone and negotiate with every client’s debts. That would be impossible. There aren’t enough counselors, and the creditors couldn’t handle the call volume. There aren’t even enough phones for that kind of debt negotiation to work.
Of course, if one of our clients has a debt to a creditor that isn’t in our system—a local dentist’s office, for example—we do have people who pick up the phone and call them and conduct a one-on-one debt negotiation. But that’s not an everyday occurrence. Most clients have debts to creditors we’ve already negotiated concessions with, and those concessions are applied fairly and equally to all of their customers.
It’s still a minority of clients who come to us for free credit counseling and education who need the additional assistance of a Debt Management Plan. For those clients, we can tell them by the end of their session what their new consolidated debt payment will be and how the DMP will help them repay their debts. They don’t have to wait weeks to find out whether the creditor is on board.
Doing the debt negotiation ahead of time makes that possible.
Photo: Images_of_Money via Flickr
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