How to Settle Your Debts in the District of Columbia

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Written by Upsolve Team.  
Updated March 18, 2020

Summary

To determine whether a debt settlement is right for you, you have to collect information about your income and expenses to better determine whether you can afford the debt settlement process. Then you have to decide who will negotiate the settlement of your debts.  

A famous resident of the District of Columbia, Abraham Lincoln, filed for bankruptcy in 1833 because of a failed business. Before considering bankruptcy like Honest Abe, know that a District of Columbia debt settlement will let you pay less than the total amount owed for a debt. Bankruptcy is a great debt relief option for many Americans, but debt settlement is also a great debt relief option under certain circumstances. Essentially, you pay a lump sum to a creditor and in exchange, they partially forgive the debt you owe. You can potentially negotiate a debt settlement for almost any type of unsecured debt, including many medical bills, credit card debt, and even debts owed to a collection agency. Creditors prefer one lump-sum payment rather than installments since it minimizes the risk of you defaulting on your debt outright. This process is an option that may be worth considering, especially if your credit score is already poor and you have funds available to offer to your creditors in exchange for partial debt forgiveness. You can hire a debt settlement company or negotiate with your creditors by yourself. 

Settling a debt negatively affects your credit report and credit score since you are paying less than the full balance owed. However, this may not be your primary concern if your credit score is already low. Especially if you’re two or three months late paying any of your debts, a debt settlement is worth considering. You’re a good candidate if you have enough cash or can sell enough property to make a lump-sum payment. If you’re getting so many collection calls for unsecured debts that you’re thinking of changing your phone number, it may be time to consider a debt settlement. Debt settlement is proof that debt relief is possible without filing for bankruptcy. 

Note however that there are tax consequences if more than $600 of debt is forgiven since this money is considered income and therefore taxable. One of the benefits of bankruptcy is that any forgiven debt discharged in bankruptcy is not considered taxable income. 

Learn More Through Free Nonprofit Credit Counseling

When your financial situation becomes unmanageable, consider getting help from a credit counseling agency. Many experienced, trustworthy debt relief agencies offer no-cost credit counseling to help consumers better understand their money management and debt relief options. Licensed credit counselors trained in areas of personal finance can explain the positives and negatives of each debt relief option and help you develop a personalized action plan designed to facilitate your financial goals. 

Credit counseling agencies offer debt management plans, a form of debt consolidation, but do not offer debt consolidation loans since they’re not a bank. They also cannot settle your debts, but they can help you better determine whether debt settlement is an option worthy of your consideration. A credit counseling agency that is a member of the National Foundation for Credit Counseling (NFCC) is a good choice, as all agencies that are members of the NFCC are accredited and therefore held to high standards. 

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How to Settle Your Debts in the District of Columbia 

To determine whether a debt settlement is right for you, you have to collect information about your income and expenses to better determine whether you can afford the debt settlement process. Then you have to decide who will negotiate the settlement of your debts. 


Collect Details About Your Debts 

Next, gather the details about all your debts, even those debts you don’t want to settle. Organize information regarding the current balance, interest rate, and monthly payment amount for each debt. A current credit report from each of the three credit bureaus will list many of these details, so it’s a good idea to pull a free copy at this time. Some of your overdue debts may have been sold to collection agencies - pulling your credit report will allow you to determine who now “owns” each of your debts and therefore who you should be negotiating with for settlement purposes. 

Collect Details About Your Ability to Settle Your Debts 

If you’re interested in making short-term installment plans to a debt settlement agency (instead of offering your creditors a lump sum payment all at once) you must calculate your monthly income and expenses to create a workable financial plan for a budget. A budget consists of your income, expenses, and disposable income. Assessing your budget will help you to determine whether you can afford to make installment payments in a settlement context.

Any pay stubs that are representative of a typical work week, ideally, the two most recent, should help you calculate the amount of income for your budget. If you have non-regular employment income or non-employment income, then calculating income will be a bit more difficult. Focus on regular income that you’ll be able to rely on for the next few months. Income doesn’t have to be taxable to qualify for your budget, just available to pay living expenses. When figuring out expenses, don’t forget any irregular expenses that you might have coming up, like car registration renewal fees. Whatever income remains available after paying your expenses is the amount you’ll have available to fund settlements.

Learn About the Costs to Settle Your Debts in the District of Columbia 

Settling your debts is not a “free” process, even if you choose to negotiate with your creditors on your own. You aren’t eligible to settle your debts until your accounts are significantly past due, so late fees and penalties accrue for as long as it takes to come to a settlement agreement. Additionally, there are the costs associated with hiring a debt settlement company, like the fees paid for its services and any other fees associated with maintaining a bank account for debt settlement. Whether you use a debt settlement company or take responsibility for debt negotiations yourself, the longer you wait, the more this process will cost you.

A debt settlement company’s fee can be calculated based on either a percentage of your total debt or a percentage of your debt savings. A fee based on the amount of debt saved gives the debt settlement company an incentive to get the best result possible. Both federal and Washington D.C. law prohibits a debt settlement company from collecting fees until it has completely performed its service in settling your debts.

Decide Whether to Work with a District of Columbia Debt Settlement Company 

If you don’t want to or can’t afford to hire a District of Columbia debt settlement company, know that you can negotiate a debt settlement yourself with no professional help. If you’re good at organizing information and can communicate and argue your position, there is no reason you can’t obtain a debt settlement on your own. If you settle your debts on your own, you save any fees charged by a debt settlement company. Also, you completely control the process and learn everything directly as it happens rather than having to rely on a third-party. Any creditors who refuse to work with a debt settlement company may be willing to work with you.

The drawback of negotiating your own debt settlement is that a substantial amount of time and effort is required. While you’re in total control, you also have full responsibility for everything related to the settlement as it happens. It may be overwhelming and interfere with your everyday life. Another possible negative effect of working alone is that you may not have the time to deal with every creditor. Finally, not having any insider information about a creditor and what kind of settlement offer it may accept may prolong debt settlement negotiations.

Research District of Columbia Debt Settlement Companies 

Be careful before you sign up with any particular debt settlement company. They’re required by law to give you specific information about their debt settlement programs, in-part because so many debt settlement companies have been exposed as scam operations. You’re entitled to information about the price, terms, and timetable of each company’s services. All fees and any conditions on services must be explained to potential clients. A company must also inform you about how long it will take before it will make a settlement offer to each creditor. This includes the amount of money or the percentage of each debt necessary for you to save before it makes an offer to a creditor.

Debt settlement mainly falls under the federal jurisdiction of the Fair Debt Collection Practices Act (FDCPA), which is administered by the Federal Trade Commission (FTC). See theDistrict of Columbia Attorney General’s website for information about consumer protection. Consult with the Better Business Bureau or other consumer protection organizations to learn about qualified debt settlement companies.

How to Make Your Debt Settlement Work

A debt settlement process that is made in installments will only work if each monthly payment is made on time. If you get paid on the 20th of the month, don’t schedule your payment for the 15th. Circle the date when your monthly payment is due to make sure you make prompt and timely payment each billing period. Know that if you default on your debt settlement program, your total amount of debt could again become due. If you’re not making a lump sum payment, make sure that you’re making installment payments on time, every time. 

Alternatives to Debt Settlement

There are other options available if you find that a debt settlement plan isn’t for you. Your personal circumstances such as your amount of debt, types of debt, and credit score may lead you to better options. Remember, 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. It’s important not to give up if you can’t reach settlement agreements but to continue to investigate and learn about your options until you can reach your financial goals. 

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District of Columbia Debt Consolidation

Terms like “debt settlement,” “debt management,” and “debt consolidation” are confusing to most consumers. However, there is no reason to be intimidated by these terms - each simply signifies a debt management solution that may allow you to regain firm financial footing. A District of Columbia debt consolidation loan acts as a balance transfer so that your combined debt accounts are paid off using a new line of credit. This new line of credit is then paid monthly. You’ll need a high credit score to take advantage of this option.

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District of Columbia Debt Management Plan

If you have poor credit, a debt management plan may be the method of debt management that is best for you. Unlike a debt consolidation loan, you don’t need a high credit score to qualify for a debt management plan. You’ll work with a credit counseling agency to negotiate favorable repayment terms with your creditors. You’ll then make one monthly payment to the agency, which will distribute the funds of the payment to your creditors. 

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District of Columbia Bankruptcy

If, after considering debt settlement, debt consolidation, and debt management, you still don’t have a solution, consult with a qualified D.C. bankruptcy attorney. Most provide free initial consultations. Upsolve can also help if you are considering bankruptcy. We help thousands of Americans file bankruptcy cases annually. Bankruptcy can be an intimidating option, but it is one that can help you to wipe your debt clean and is therefore likely worthy of your consideration.

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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