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Should you try to negotiate your debts?

When you get behind on your bills, it can be a scary experience. Creditors blow up your phone with calls and your mailbox is stuffed with dunning letters seeking payment.

You might also receive letters from companies offering to negotiate longer terms or a lower settlement amount for your debts -- for a fee, of course. Should you take them up on their offer?

In general, no. You can do everything that these companies claim that they will do for you. You are free to negotiate your own debt settlement or term extension with your creditors. Most companies would rather receive partial payment than none at all, so when they realize that your credit is severely overextended, they usually are open to discussions of accepting a lower amount.

It's always wise to stay in contact with your creditors even when you can't repay your debts right now. Many times, creditors will be willing to work with you to resolve your debt dilemmas. It's when you go dark and radio silent that creditors often decide to ramp up their collection activities.

At a certain point, however, you may become too mired in debt to ever be able to dig yourself out. It might then be time to consider the wisdom of filing for a Chapter 13 bankruptcy discharge.

Unlike a clean-slate Chapter 7 that wipes out your debts entirely, you will instead reorganize your debt and extend your payment efforts for three or five years. At the end of that preset period, if you have upheld your obligations, the remaining debt will be extinguished.

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