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How to Settle Your Debts in Iowa

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In a Nutshell

There are many options available to those who are interested in managing their debt more effectively. Read on to learn more about the debt settlement process specifically and to learn some general knowledge about some debt management alternatives that may or may not be a better “fit” for your specific circumstances.  

Written by Upsolve Team
Updated March 26, 2021

Are you afraid to look at the phone number on your phone for fear it is a collection agency? If this is your financial situation, debt settlement might be able to serve as a solution to some of your debt-related challenges. The primary benefit of debt settlement involves paying less than the full amount that you owe to your creditors. You may wonder why your creditors would settle your debts for less than you owe. Debts that are more than three months (90 days) overdue have only a 25-50% chance of getting paid back in-full. As a result, banks and other creditors of unsecured debt are often willing to settle for less money as opposed to risking not being able to collect any money at all. Essentially, debt settlement allows you to offer your creditors a lump sum in exchange for partial debt forgiveness and the closure of your account.

Wondering if you are eligible for debt settlement? This type of debt relief is well suited for consumers who don’t have too many creditors and who already have a damaged credit score. Unsecured debts are the best candidates for settlement. Debts like signature loans, some student loans, store credit cards, bank-issued credit cards, gas cards, medical bills and most other debts not secured with collateral may potentially be candidates for settlement. Secured debts, like car or furniture loans, are tied to collateral that may be repossessed if you default on your payments. Secured creditors tend to prefer to exercise their repossession rights instead of settling, so you’ll want to focus your debt settlement efforts on your unsecured debt accounts. 

Learn More Through Free Nonprofit Credit Counseling

Concerned you will have to resolve your financial situation alone? Thankfully, there is good news for Iowa consumers seeking help with debt management challenges. National Foundation Credit Counseling (NFCC) member credit counseling agencies provide a free credit counseling session with a trained credit counselor for every individual interested in learning about their debt management and debt relief options. You don’t have to do anything to qualify for this opportunity, and it is a no-risk, no-obligation, and no-cost service. NFCC member agencies are all accredited, nonprofit operations held to the highest standards of industry conduct and professionalism. The advice you receive during your session will be informed and solid. But the decision of whether or not to follow through with that advice is always up to you. 

It will be important to share all of your financial information with your counselor, knowing that the information you provide will be treated confidentially. Your session will involve reviewing your income, expenses, and debts so that your counselor can provide you with an analysis of your financial situation and a personalized action plan designed to help you reach your financial goals. By doing this, your counselor can assess whether or not debt settlement is the way to go or if an alternative other option is a better fit for your situation. Your counselor will help you develop financial goals and a plan to reach them. Why put off becoming debt-free any longer when you can get help from nonprofit credit counseling at no cost to you or your family?

How to Settle Your Debts in Iowa

There are many options available to those who are interested in managing their debt more effectively. Read on to learn more about the debt settlement process specifically and to learn some general knowledge about some debt management alternatives that may or may not be a better “fit” for your specific circumstances. 

Collect the Details About Your Debts 

Before you can determine whether or not debt settlement might be a good option for you, you’ll need to gather details about all of your debts. Review the most recent statements for all your credit cards, medical debts, and even those debts you don’t plan to settle (like car loans). Having all of this information in one place will help you determine which debts may be good candidates for settlement and will allow your credit counselor access to valuable information about your financial situation as a whole. Pay particularly close attention to interest rates and current balances. Note which debts are secured and unsecured, as unsecured debts are the best candidates for settlement. Secured debts are attached to collateral, so secured creditors don’t like to settle. If you default on these loans, your creditors will likely choose to repossess your property instead.

You’ll also want to pull your free credit report, as this report will list your creditors and payment history all in one place. Your credit report will also tell you if any of your overdue debts have been sold to debt collectors. In this situation, you’ll have to approach the debt collectors directly about settling because they now “own” your debt. 

Collect Details About Your Ability to Settle Your Debts

You can generally approach the debt settlement process in two ways. One option involves making one lump sum payment directly to a creditors to settle your debt. Perhaps you have savings or stocks you can cash in to come up with a lump sum payment. Avoid using your retirement or pension fund and leave that money for when you no longer are working. 

If you don’t have income immediately available or property that you can sell to fund your settlement offers, you’ll likely need to work with a debt settlement company to build up funds in an escrow account over a 2-3 month period. The company will then be able to make a lump sum offer to your creditors after enough money has accrued in the account. To determine whether this approach is a viable one for you, you will need to determine how much money you have leftover each month after paying your living expenses. Start by creating a budget listing your monthly income and expenses. Account for expenses that don’t change (rent) and average an amount for those that do (groceries). If you have little or no money left over after adding up all your expenses, then a debt settlement is likely not the right option for you. One of the debt management alternatives listed at the bottom of this guide may be a better fit.  

Learn About the Costs to Settle Your Debts in Iowa

The longer you wait to settle (or otherwise manage) your debts, the more late fees and penalties associated with defaulting on your accounts will accrue. It is therefore important to move as quickly as possible to resolve your delinquent debt. It’s also important to keep in mind that there are costs associated with seeking help from an Iowa debt settlement company. Companies charge for their services related to negotiating your debts. Most companies will place your funds in a third party account with a bank. Therefore, you will pay bank fees as service fees charged by the debt settlement company. Iowa debt settlement companies can charge anywhere from 14% to 18% of the total amount of debt that you are settling with your creditors or the amount that they save you in partial debt forgiveness. This latter option is preferable because it incentivizes the company to get you a great deal. You won’t have to pay this amount until after the company has negotiated the settlement with your creditors. 

Decide Whether to Work with an Iowa Debt Settlement Company

You can settle your debts without hiring an Iowa debt settlement company.  Maybe you already track your finances with a detailed monthly budget and are a savvy negotiator. However it’s important to know that there are some risks to going it alone. In addition to possibly feeling overwhelmed once you get started, you won’t have “insider knowledge” that an Iowa debt settlement company has about what terms specific creditors typically accept in a settlement situation. If you get stuck when negotiating with a creditor, you may have trouble escalating the conversation to someone with decision-making authority. Debt settlement requires time, effort, careful tracking, and attention to detail. If you feel comfortable taking a DIY approach, you’ll save money in fees that would otherwise go to a settlement company. As a result, there are pros and cons to both options. Choose whichever option makes the most sense for your particular circumstances.  

Research Iowa Debt Settlement Companies

As you know, there are sometimes false promises made to consumers seeking debt settlement assistance, so be careful if you decide to work with a debt settlement company. There are several red flags or signs to look for to better ensure that you avoid scams. Avoid companies that use phrases like “new government programs” or make guarantees that they have no business making. A big red flag is a company that charges fees before they settle your debts. This is not an acceptable business practice, so walk away from any company that tries this approach. You’ll want to do some research to find a debt settlement company you can trust by checking with the Iowa consumer protection division in the attorney general’s office for a history of company complaints. You can also check with the Better Business Bureau. A trustworthy Iowa debt settlement company will explain their fees and any conditions on their services upfront and go over any risks associated with the process. If a company is telling you something that seems too good to be true, walk the other way.     

How to Make Your Debt Settlement Work

Your primary goal at this point is to stay current with your monthly payments (or to make your one-time lump payment successfully). This is why having a detailed monthly budget that also sets funds aside for emergencies is so important. You don’t want to risk an emergency derailing your debt settlement program. If you can’t make room in your budget for emergencies, you may be able to use a credit card to pay for an emergency. If you have to do this, immediately have a plan to pay off this new debt as soon as possible. Be aware that there are risks to keeping one or more credit cards open while pursuing a debt settlement. It can impact your settlement offers negatively. If the card you kept out of the settlement process is managed by a bank where you have other credit cards, the bank may close the account you’re trying to keep open. Another risk is that the credit limits on the cards you are trying to keep may be reduced.

Other strategies to stay current with your monthly settlement payment include scheduling the payment(s) when it makes the most sense and making extra or early payments, if possible. Since your rent or mortgage payment is probably due at the first of the month, you should avoid having the settlement payment due at the same time. Think of ways to make extra payments by using birthday or income tax money. This is a sacrifice but it will be well worth it when you are finally debt-free.  

Alternatives to Debt Settlement

The key to a successful debt settlement process is your ability to make and keep current on your monthly settlement payments or to fund a lump sum offer upfront. If you’re struggling with debt, chances are that you’re not necessarily in a position to make either of these options work. As a result, debt settlement may not be the best debt management or debt relief option for you. Thankfully, there are alternatives available. After reading brief descriptions of each, you may want to discuss these options with your credit counselor. 

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Iowa Debt Consolidation

An Iowa debt consolidation loan may be a better option for you if you have excellent credit. Applying for a new line of credit and paying off your existing debts with that single account will streamline your repayment process. Having good credit will help you get favorable repayment terms on the debt consolidation loan. This type of debt relief works well if you can qualify for enough credit at favorable rates to pay off all your outstanding high-interest unsecured debt balances. If you have poor credit, you will likely not qualify for this option and will want to consider a debt management plan instead. 

Iowa Debt Management Plan

Maybe taking out a loan to pay off all your debts is not the option for you. Your credit counselor can discuss constructing an Iowa debt management plan or DMP as a debt consolidation loan alternative. With a DMP, you will stop paying your creditors directly. Instead, you’ll make one monthly payment to a nonprofit credit counseling agency, which will then distribute that payment to your creditors, per the terms of your plan. This option can help reduce your current interest rates and monthly payment amounts due.  

Iowa Bankruptcy

Many Iowa consumers may find that none of the options mentioned above fit their specific financial situation. If you have no money to pay your debts, you simply can’t manage them in these ways. Thankfully, there is another debt relief option available to you that may allow you to achieve a fresh start: Iowa Chapter 7 bankruptcy. This option can eliminate eligible debts outright in as few as 90 days. To learn about filing a Chapter 7 bankruptcy, you can schedule a free consultation with a bankruptcy lawyer in your area. Lawyers will charge fees for their services. If you are eligible to file for Chapter 7 bankruptcy and can’t afford an attorney, Upsolve may be able to help you file your case for free.

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