Debt settlement or debt arbitration is a legal process in which the debtor and the creditor negotiate to reduce the net payable debt amount and rearrange a new monthly repayment schedule. The approach is proactive in nature and involves bargaining with the creditor. The objective is to bring about cost effectiveness in relation to the debt repayment activity. When debtors fail to make timely payments to the creditors, the lenders tend to suffer a certain financial loss in terms of loan interest and the total amount lent. The debtors may find it difficult to be regular in making the monthly payments owing to the current financial recession. And that’s why creditors consent to a middle way out and waive certain portions of their profit to make it easy for the debtor to repay the debts. The basic idea is to be realistic and get something out of the deal rather than be stubborn and insist for the whole loan amount.

Debt negotiation and debt settlement

The process of negotiating is specialized since the arbitrators should know when to back off and when to proceed ahead depending upon their bargaining options and the debtor’s financial condition. And while negotiating, the creditors prefer not to succumb to the sales talk offered by the debtor since he or she would definitely end up with a loss. Creditors always try to minimize their losses. And that’s where debt settlement companies come in. They offer a way out with their debt settlement program and debt negotiation activities.

Debt settlement specifics

Typically a debt settlement company employs a team of specialized debt experts who often have a legal standing. Such professionals are often lawyers or financial experts who have been in the market for some time and know the ropes about how financial issues work out. The debt settlement company associates one such expert with one client or customer. The expert then listens to the debtor’s issues and tries to understand the debt specifics. In subsequent meetings, the expert finds out about the financial potential of the client i.e. what the individual is capable of doing in terms of generating more cash, and up to what extent. In the second phase, the expert suggests some strategies which the debtor can undertake and implement. All possible options are worked out, and in the end the expert gets a good idea regarding the earning and paying potentials of the client.

The final stage includes negotiations with the creditor. Before proceeding to this stage, the expert does some homework and prepares a negotiation plan based upon a set of positive points – things that are in the debtor’s favor, and a set of negative points – things likely to go against the debtor. After evaluating both the aspects, the expert becomes the debtor’s representative and goes to the negotiation table with the creditor. The negotiation process can be lengthy or short depending upon the creditor’s prerogatives and willingness to help the debtor. However, the representative makes all efforts to work out a deal in which the net payable debt amount is reduced and some interest amount is waived off. Efforts are also made to work a new repayment schedule so the debtor can pay the creditor depending upon what he or she earns and saves at the month end.

Debt settlement services

The effectiveness of the entire exercise depends upon three factors – the debtor’s financial condition, the negotiator’s abilities to bargain and the creditor’s will to be helpful. Generally debt settlement companies offer various kinds of facilities and programs such as debt settlement services through credit card debt settlement programs, debt negotiation services through debt negotiation programs and also debt elimination through a combination of both debt settlement and debt negotiation programs. Some companies offer debt elimination specifically through their debt elimination programs.