The Dos & Don’ts of Debt Settlement 

When the prices you pay for groceries, gas, and housing increase, it's difficult to make ends meet. This problem then gets compounded by rising interest rates that put less of your payment toward the principal of the debt and more toward what you pay for the privilege of using someone else’s money.  

It’s easy to start falling behind. It begins with making only the minimum monthly payments. Then you begin making payments late or missing them altogether. The financial stress can be overwhelming. 

There are a few ways to deal with excessive debt, including bankruptcy and debt consolidation loans. Debt settlement can also offer a promising opportunity to unload massive debt and achieve a clean financial slate.   

At the Law Office of Jason Cline, I help clients in Albuquerque, Rio Rancho, Santa Fe, Los Lunas, or anywhere else in New Mexico, explore their options regarding debt settlement. I can help you figure out what to do and what not to do if you choose to explore this option.  

What Is Debt Settlement? 

Basically, debt settlement is negotiating with creditors to get them to accept less than what you owe in full settlement of the debt. For example, if you are making payments on a $25,000 medical debt, you may be able to negotiate a lump sum payment of $18,000 to settle the debt.  

Of course, you must have the money to make the lump sum payment, and the creditor must be willing to accept less than you owe. Still, under the right circumstances, it can be a win-win. You get out from under the debt and your creditor recoups most of what they lent you.  

You should know that this type of debt relief, as with most types, can lower your credit score. The debt will appear on your report as “settled,” which indicates that you did not repay the full amount owed. Nonetheless, that downward path for your score could have much less of an impact than, for example, filing for bankruptcy.  

There are multiple factors you need to weigh before choosing settlement as a debt relief option. An experienced debt settlement attorney can help you explore your options and navigate the process from start to finish. Begin with a few general debt settlement tips.  

The Dos of Debt Settlement 

• Do confirm the amount of money owed to a creditor as of a certain date and get that confirmation in writing. When you signed for a loan on that used car, for example, you saw the principal amount, interest rate, fees, and a total amount owed as of the date of the final debt payment. If you pay the debt off early, even at a reduced rate, you may reduce the interest owed. That is why it is important to ask for a payoff sum as of a certain date.  

• If the debt has been turned over to a collection agency, do get confirmation from the primary lender as well as the collection agency. Then, make sure the numbers add up. The two don’t always communicate well, so you might have made payments on the debt that one or the other has failed to reflect in what they purport to be the outstanding sum.  

• Do get any agreement regarding a debt settlement in writing. Make sure it details all sums owed, including principal, interest, penalties, and fees. Also, make sure the creditor signs and dates the agreement.  

• Do maintain copies of all payments made, agreements, terms, and other information related to the settlement. It will provide the evidence you need to support satisfaction of the debt, should the creditor attempt to charge you more later.  

The Don’ts of Debt Settlement 

• Don’t negotiate a debt settlement agreement without the guidance of an experienced debt settlement attorney. Creditors will take advantage of your ignorance when they can, hoping to make more money out of you that you believe you are agreeing to pay. Your attorney will protect your interests and make sure agreements are thorough and honored. 

• Don’t neglect to consider the tax implications of any debt settlement. Although a creditor may agree to accept a reduced sum in full and final settlement of your debt, you may owe taxes on the difference. Using the previous example, you may satisfy the $25,000 debt with an $18,000 lump sum payment, but you may owe taxes on the $7,000 difference.  

• Don’t forget to set aside money in a savings account to cover unexpected or overlooked expenses or emergencies that may arise while you are settling your debt. Resist the temptation to turn every dime over to repay debt without leaving yourself a cushion.  

• Don’t accrue new debt on the heels of settling old debt. Debt settlement will offer you the opportunity to begin making smarter financial decisions going forward, which will keep you from shouldering the stress of excessive debt again.  

Determine Your Debt Settlement Options Today 

Debt settlement is not the only way you can get out from under your debt, but it could be the right relief path for you. If you are ready to explore your options, I am ready to help.  

Call the Law Office of Jason Cline in Albuquerque, New Mexico today to schedule a consultation. It might be your first step toward a better financial future.