Debt negotiation is a process in which debtors or people acting on their behalf work with their creditors to reduce the total amount of debt owed, with the understanding that the newly reduced debt will be paid in full either immediately, or on a timely schedule. The purpose of debt negotiation is to allow people to get out from under debt which may be insurmountable otherwise. When negotiations are made, they can negatively impact a credit report, but not nearly as much as declaring bankruptcy or simply ignoring the debt and not making payments on it.

As a general rule, creditors would prefer to collect the balances they are owed in full. However, if it becomes clear that a debtor cannot pay a debt off, it may be to the creditor's advantage to accept partial payment and consider the issue closed. Debt negotiation can help clear a creditor's books of bad debts, giving it a clearer financial picture. For the debtor, of course, it offers an opportunity to close out debt.

Some people accomplish debt negotiation on their own. Simply calling a creditor such as a credit card company and offering a sum to close out an account is sometimes enough. At other times, creditors may want to dicker back and forth, but creditor and debtor can eventually settle upon a reasonable agreement which satisfies both parties involved. There are a number of techniques for negotiating debt independently, many of which are discussed in books on debt negotiation.

In other cases, a debtor may hire a debt negotiation professional, ranging from a lawyer to a credit counseling agency, to negotiate debt on his or her behalf. Professionals have the advantage of experience and knowledge of other cases which they can bring to bear on getting the best settlement for their clients. However, debtors need to be careful about debt relief services offered by individuals or agencies.

If someone claims to be able to erase debt, this is a bad sign. Creditors may be willing to reduce debt owed if they see evidence of financial hardship and inability to pay, but they will not cancel debt. Likewise, high fees can be a danger sign, as can blanket claims about the amount of debt which can be reduced. A debt negotiator won't have an idea of how much someone's debt can be reduced until he or she gets the details of a case; a “guarantee” that a company can reduce debt by a set amount or percentage, in other words, is no guarantee at all.

Because people seeking debt relief can be vulnerable to predatory activities, some governments have established programs to help debtors connect with reputable negotiators. Before entering into an agreement with a debt negotiator, it's a good idea to check the name of the negotiator or organization with the Better Business Bureau, a consumer advocacy organization, or a state attorney general to confirm that the organization or person is respected and will actually help.