WTFinance is debt resolution?
By Miranda Marquit
Apr 10, 2023
Read time: 2 min
When things get tough, wouldn’t it be nice to catch a break on your debts? Indeed, you might be able to get some relief.
Debt resolution—also sometimes called debt negotiation—is an agreement between you and your creditors to reduce the total amount you owe. You can do it yourself—or work with a reputable debt resolution company.
In other words, debt resolution means you make an offer to your creditor for less than the amount you owe, and they accept it as full and final payment of the debt. That’s it.
Anyone can negotiate with their creditors, but not everyone is comfortable DIYing it. If you need a helping hand, you can hire a professional debt resolution company. A team of experts will do the heavy lifting for you. They’ll work with creditors on your behalf to reduce the amount you owe.
There are a couple of important things to understand here.
One, creditors don’t usually negotiate with people who are paying their bills. If you’re paying on time each month, they won’t have any reason to think you can’t keep doing so.
If you’re keeping up but your budget is strained, a personal loan for debt consolidation might be an option, especially if you can get an affordable monthly payment. To qualify for a personal loan, you’ll need to meet the lender’s credit score requirements.
Debt resolution is something to consider only once you’ve really fallen behind or you’ve suffered a serious financial hardship that is making it impossible for you to keep up with even your monthly minimums. Debt resolution has no minimum credit score requirement.
Two, you’ll need to make a legit offer. If you owe $10,000 and you only have $500 to offer, it’ll be a pretty tough sell. Most people start by setting aside some money each month that they can use to negotiate. Once you have enough money saved up, you can make an offer.
What can debt resolution do for me?
It’s possible to reduce and resolve your debt. If you’re struggling with your bills, debt resolution could help you:
Get rid of debt faster: Debt resolution could help you pay down your debt faster than you would by just making minimum monthly payments. If you are paying only your monthly minimums, it could take many years, sometimes even decades, to pay off the debt in full.
More money in your pocket each month: With a professional debt resolution provider, you typically make one monthly deposit into a dedicated savings account—as the funds build up, they’ll use the balance to negotiate with your creditors. Often this monthly deposit is less than all your monthly minimum payments, which means more money in your pocket that you can put towards necessities or building up emergency savings.
Potential to pay less overall: By negotiating with your creditors, you may be able to reduce what you owe, and pay less overall than you would without debt resolution.
What types of debt can be resolved?
Debt resolution is for unsecured debts (“unsecured” means they are not guaranteed by a valuable asset, aka “collateral” such as a house or car). These types of debt may be negotiated:
Credit card debt
Private student loans
Department store credit cards
Lines of credit
These kinds of debt can’t be negotiated through debt resolution:
Secured loans (like mortgages or auto loans)
Federal student loans
A debt advisor can help you determine which of your creditors are likely to work with you.
The reason creditors don’t negotiate secured debt is that collateral is tied to the loan. For instance, a car loan is secured by the car. If you can’t afford to repay the loan, the lender can sell the car.
Is debt resolution right for you?
Debt resolution might help if:
Your primary breadwinner died or became unable to work
You became unable to work
A severe financial hardship, like job loss or a divorce, left you unable to make ends meet
You intended to repay your debts but now you genuinely can’t
You need help making a plan to get rid of debt
You do not qualify for a debt consolidation loan because of a low credit score
With help from an expert, you might be able to tackle your debt faster than expected while building on a solid financial foundation.