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How to Settle Your Debts in Colorado

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In a Nutshell

Before you can successfully determine whether a debt settlement is your best option, you must first collect and review information about your finances and about the debt settlement process itself. Once you’ve evaluated this information, you can make whatever choice is right for you at this time.

Written by Upsolve Team
Updated December 20, 2023

One of the oldest coal companies in the U.S., headquartered in Colorado, Westmoreland Coal Company, filed a Chapter 11 bankruptcy case in 2018. In reorganizing, this energy giant reduced costs by reorganizing many of its most burdensome debts. Legendary ex-Denver Nuggets player, coach, and general manager Dan Issel filed for Chapter 7 bankruptcy in 2009. Issel’s attorney claimed bad business investments were the cause of his financial problems. Issel is now successfully working in the oil and gas business. These are just some examples of the ways in which those Coloradoans who refuse to quit often find solutions to their temporary financial misfortunes.

If you’re struggling with debt, know that one possible solution worthy of your consideration is debt settlement. Through debt negotiation, part of the debt settlement process, you can reduce the total amount of your debt. Paying less than a debt’s outstanding balance in a Colorado debt settlement can alleviate your financial problems. You can make a settlement offer to each of your unsecured creditors, a credit card company or even a collection agency, and accomplish a manageable settlement plan. Payment by lump sum is usually preferred by most creditors since it reduces the risk of any further payment default. Essentially, debt settlement allows you to “trade” a lump sum payment for a significant fraction of your total amount owed for partial debt forgiveness and the closure of your account. 

You can settle debts yourself or you can work with a debt settlement company. Keep in mind, any type of debt settlement, even with the creditor’s agreement, will negatively affect your credit score. The fact that this debt relief option negatively affects credit scores on a temporary basis and that debtors need to have access to enough capital to fund settlement offers are the two primary reasons why this option isn’t the best solution for everyone. If debt settlement isn’t the best option for you, please explore some of the alternative debt management solutions listed at the end of this guide.

With that said, if you are two or three months late making a payment on a particular account, a debt settlement could be a good option, especially if you can pool enough money or sell enough property to fund an offer. It’s important to remember that a creditor won’t get any payments while you’re building your settlement account. During this time, the creditor will likely report your missed payments to the credit bureaus. It can even turn your debt over to a collection agency or file a lawsuit against you. A debt settlement also has tax consequences since any amount of debt saved of $600 or more through settlement is considered taxable income. Therefore, you need to think carefully about whether this is the best course of action for your situation before moving forward. 

Learn More through Free Nonprofit Credit Counseling 

Credit counseling agencies can serve as a source of significant, free and useful information about your personal finances and debt management options. Many qualified credit counseling agencies offer free credit counseling to anyone interested in learning more about potential debt management solutions. Consumers should take advantage of these free services before making any decision about resolving their debts. Debt management plans, a form of debt consolidation, are typically some of the services provided by credit counseling agencies. Licensed credit counselors can give you important information about the pros and cons of each debt relief option. This allows you to be better informed when you ultimately choose the option(s) that will best suit your financial situation. 

How to Settle Your Debts in Colorado 

Before you can successfully determine whether a debt settlement is your best option, you must first collect and review information about your finances and about the debt settlement process itself. Once you’ve evaluated this information, you can make whatever choice is right for you at this time.

Collect the Details About Your Debts 

First, collect all the paperwork that contains the details about your individual secured and unsecured debts. The latest account statement with each debt’s current outstanding balance, interest rate, and monthly payment amount should provide you with this information. You should consider doing this even for those debts that you may not want to settle, like a federal student loan because gathering all this information in one place will allow you, your credit counselor, and any debt settlement company you’re interested in working with access to a more complete sense of your overall financial situation. This information can help a debt relief agency help you find personalized solutions. It can also put you in a better position to consider other debt-relief options like debt consolidation and debt management. 

Additionally, pulling a free, current copy of your credit report from the three main credit bureaus will provide your with important information about your debts. For example, if any of your debts have been sold to debt collectors or collections agencies, you’ll know who “owns” your debt and who you should be negotiating with in regards to settling it. 

Collect Details About Your Ability to Settle Your Debts 

To take advantage of any debt settlement program, you need to know what resources you have available to fund settlement offers. If you don’t have access to a lump sum and you don’t plan on selling property to fund this process, you’ll need to take a look at your budget to determine what you can save in a short time to fund your offers before late fees and penalties become unmanageable. 

Pay stubs that are representative of a typical work week are a good starting point to help you estimate the income portion of your budget. If you use self-employment or non-employment income to pay expenses, then it will probably be more time-consuming to determine an income amount that’s representative of the work period for which you’re trying to estimate income.

Next, consider your fixed and variable expenses. Fixed expenses change very little from month-to-month. Cable, internet, car insurance, even student loan payments, are examples of fixed expenses. Variable expenses fluctuate monthly for many reasons. Groceries, gas, and recreation costs are examples of variable expenses. You may be able to cut down on some variable expenses as you’re saving to fund settlement offers. Expenses can be estimated by reviewing your bank statements for the last three months and then dividing the total for each category by three.

The amount of money remaining after subtracting the total of your final expenses from the total of your final income is the amount of disposable income that you have remaining to pay your creditors. If monthly payments of this disposable income will accumulate into a fund large enough for making a lump sum payment that a creditor will accept, a debt settlement may work for you. If you have too little disposable income to make a debt settlement work, you may have to consider other options, like debt management or debt consolidation. It’s important to remember that there are other options available, even if you have a low credit score.

Learn About the Costs to Settle Your Debts in Colorado 

There’s a cost involved in settling your debts, regardless of whether you hire a debt settlement company or enter into debt negotiations yourself. Keep in mind that you’re continuing to incur late fees and penalties during the time that you have yet to achieve a debt settlement. You also incur costs by paying a debt settlement company to resolve any unpaid, outstanding obligations.

A debt settlement company may determine its fees in different ways for the services it performs during the debt settlement process. The fee charged by a debt settlement company may be based on either a percentage of your total debt or a percentage of your total debt savings. In most cases, a fee based on the amount of your savings gives the debt settlement company greater incentive to obtain the best possible settlement on your behalf. Federal and Colorado law both prohibit a debt settlement company from collecting fees until it has settled your debts. 

Decide Whether to Work With a Colorado Debt Settlement Company 

Next, you need to decide whether you want to hire a debt settlement company. Before you hire a Colorado debt settlement company, remember, you can negotiate a debt settlement on your own with no professional help. It’s not like a debt consolidation where you need a lender to provide a loan. If you settle your debts without the assistance of a debt settlement company, you avoid paying any fees for services. You are in control of the entire debt settlement process. Also, there may be creditors unwilling to work with a debt settlement company that may be willing to work with you. 

The primary drawback of negotiating your own debt settlement is that a substantial amount of time and effort is required, which may interfere with your everyday life. Additionally, debt settlement companies possess insider knowledge that you probably don’t. There is no “right or wrong” decision here. There are pros and cons to both options, so simply choose the one that is best for you.

Research Colorado Debt Settlement Companies 

Debt settlement companies must disclose key details about their services, including cost, the estimated length of time it will take to get results, the negative consequences of using a debt settlement company, and other relevant information. Some negatives traditionally associated with the debt settlement process include a drop in your credit score, the possibility of legal and collection actions, and that future fees and interest may be incurred in settling your debts. 

Colorado law prohibits credit services organizations from charging or receiving any money or other fees before the complete performance of the services it agrees to perform.

Any licensed debt management services in Colorado are required by Colorado law to perform certain actions before providing debt management services. This includes preparing a personal financial analysis for their clients and educating them about personal finance management. 

If the recommended course of action further involves making regular payments into an escrow account and broader debt settlement plan, it must be based on a determination by the debt management company that the plan is suitable, and that the individual will be able to make payments. The debt management or debt settlement company must also believe that each participating creditor will accept payment as provided in the debt management plan before it acts on behalf of a consumer.

Colorado has its own version of the federal Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC). Consult the Colorado Attorney General’s website for more information about consumer protection. Check out the Better Business Bureau or other consumer protection organizations to find out about trustworthy, qualified debt settlement companies near you.

How to Make Your Debt Settlement Work 

If you’re paying your debt settlement in installments (either to your creditor(s) directly or to a debt settlement company) the due date for the monthly payment of your debt settlement is one of the most important days of the month. This date should be separated from other noteworthy days, such as the date your mortgage/rent or car payment is due to better ensure that sufficient funds will be available for all of these bills. 

In theory, you can use a credit card with a reasonable interest rate to make payments over a short-term period. However, it’s important to note that using credit cards to settle accounts with other banks may be seen by another creditor in a negative light. This could have an impact on any settlement offers you receive. Also, this creditor may see that you’re repaying and settling other debts and close your account or reduce your available credit. 

Alternatives to Debt Settlement

Remember that you have other options available to you if you find it difficult to form a debt settlement plan. You may have to consider alternatives because of your personal circumstances, such as your amount of debt, types of debt, ability to raise settlement funds, and credit score. But there are other worthwhile ways to solve debt management challenges. Credit counseling agencies can help you learn about the positive and negative aspects of other debt-relief options, such as debt consolidation and debt management plans.

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Colorado Debt Consolidation 

You can streamline your debt and make paying it down more manageable with a Colorado debt consolidation loan. You can refinance your debts in this way using a home equity line of credit, a personal loan, or a credit card balance transfer. All options combine all your debts into a single account, paid monthly like most other loans are. This process may be especially beneficial if you have good credit and are eager to maintain your positive credit score. While a debt settlement involves the partial payment of your debts and results in a temporary hit on your credit, both a consolidation loan and debt management plan strive for payment of the full amount of the debt, which improves your credit over time. 

Colorado Debt Management Plan 

A Colorado debt management plan (DMP) as a form of debt consolidation, which pays off the full amount of the debt owed over time. This option doesn’t require you to have excellent credit, as you’re not taking out a loan. Instead, you’ll work with a nonprofit credit counseling agency to streamline your debt. The agency will negotiate a repayment plan with your creditors that will result in more manageable terms. You’ll then make a single monthly payment to the agency and the agency will take care of paying back your creditors per the terms of your plan. 

Colorado Bankruptcy 

If you’ve considered debt settlement, debt consolidation, and debt management, and none of these solutions meets your needs, you can meet with an experienced bankruptcy attorney to explore this debt relief option. Alternatively, Upsolve can also help you file bankruptcy, whether you want to file with an attorney’s help or on your own for free. Upsolve helps thousands of Americans file bankruptcy cases every year to deal with tough financial circumstances, such as unsecured debt, especially credit card debt with high-interest rates, student loans, delinquent income taxes, or medical bills. We’ll even give you the forms necessary for filing. 

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