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How to Settle Your Debts in Illinois

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In a Nutshell

This guide will now provide you with information about how to determine whether the debt settlement process may be right for you. If it isn’t a good fit, consider reviewing the debt management alternatives introduced at the end of this guide for additional inspiration.

Written by Upsolve Team
Updated March 26, 2021

Debt settlement is a process that can help those who are seeking relief from debts that have become delinquent. You don’t have to be wealthy to pursue debt settlement. Debt settlement involves paying less than the outstanding balance you owe your creditors in exchange for partial debt forgiveness and the closure of your account(s). Banks know that only one of five accounts more than 90 days past due will ever get paid. To save time tracking down delinquent payments and money on accounts that may otherwise never pay out, your creditors may be willing to settle for less than the total amount owed, provided that you can offer a lump sum payment for a significant fraction of your total amount due. 

A debt settlement may be a good option for you if you are already behind on some or all of your debts. Perhaps your credit score has already been damaged because you have missed payments. If so, debt settlement may be worth considering, especially if you have income available (or property you can sell) to fund your debt settlements. This process will temporarily damage your credit score, but if your score is already less than stellar, the benefits may outweigh the disadvantages.   

Some debts are better candidates for debt settlement than others. Secured debts, like a car loan, are those debts wherein the creditor can repossess your property if you fail to pay. These debts are not usually good candidates for settlement as your creditors already have something that they can take from you if you don’t make good on your repayment schedule. By contrast, credit cards and other unsecured debts are generally well suited for debt settlement. Bank-issued or store credit cards, gas cards, signature loans, medical bills, and collection agency accounts are the usual unsecured debts targeted for the debt settlement process. 

Learn More Through Free Nonprofit Credit Counseling

Did you know that anyone in Illinois considering debt relief options can talk to a credit counselor experienced in personal finance for free? Credit counseling agencies that are members of the National Foundation for Credit Counseling (NFCC) offer anyone who wants one, a no-cost credit counselling session with an experienced credit counselor. NFCC member agencies are held to the highest standards of industry conduct, so if you work with one, you’ll be able to trust that the guidance you’re receiving is solid. 

During your credit counseling session, your counselor can give you an overview of whether or not a debt settlement is a good option for you specifically. The credit counselor will assess your finances, including income, expenses, and debts. They will also help you establish financial goals for both the short term and the long term. Finally, the counselor will assist you in developing an action plan to achieve these goals. 

How to Settle Your Debts in Illinois

This guide will now provide you with information about how to determine whether the debt settlement process may be right for you. If it isn’t a good fit, consider reviewing the debt management alternatives introduced at the end of this guide for additional inspiration.

Collect the Details About Your Debts 

To decide whether debt settlement is your best option for meaningful debt relief, you will need to collect details about your debts. Take a few minutes to pull your free credit report from each of the three major credit bureaus. Illinois residents are entitled to one free credit report every 12 months from each bureau. Your credit report will list each of your creditors and the debt amount you currently owe each of them. It will also show your payment history. Late payments or missed payments lower your credit score. Review your most recent statements for all credit cards and other debts, such as student loans. Pay close attention to interest rates, monthly payments, and current balances and enter all of this information into a spreadsheet, if you feel capable of doing so. The goal here is to have a complete financial picture available to show your credit counselor and to be in a better position to determine whether each debt is a good “fit” for debt settlement or not. 

Collect Details About Your Ability to Settle Your Debts

If you don’t have property to sell or access to significant income immediately, you’ll need to save over the span of 2-3 months to accrue enough funds to make a settlement offer to at least one of your creditors. Not everyone can afford this process, so it is important to make a monthly budget of your income and expenses to determine whether you’ll be able to save enough over a short period of time to fund a settlement offer. To determine your income, look at your two most recent paycheck stubs. This should give you a good idea of what you make monthly. Now, make a list of all of your expenses, including ones you pay every so often that may be coming up during the period of times you’re saving to fund a debt settlement offer (e.g. annual car registration). List expenses that remain the same every month like your rent or car insurance payment and include an average for expenses like groceries and gas where the amount paid varies each month. Is there any money left after paying your living expenses that can be used to pay your creditors? If little or no money is left over, then a debt settlement process is not likely a good option for you. However, some of the debt management alternatives listed at the end of this guide might be. 

Learn About the Costs to Settle Your Debts in Illinois

If you hire an Illinois debt settlement company instead of negotiating with your creditors directly, know that Illinois law allows them to charge an initial fee of no more than $50. They cannot charge upfront or monthly fees. Also, you’ll pay a settlement fee on the amount of money you save in settling with your creditors or the total amount of debt that they negotiate on your behalf. The former option is preferable as it incentivizes the company to get you the best deal possible. Illinois law puts a cap on the settlement fee at 15% of the total amount you save. 

Regardless of whether you work with a settlement company or not, it’s important to remember that debt settlement is costly, simply because the longer it takes for your creditors to settle, the more fees and penalties will accrue on your delinquent accounts. Creditors generally won’t even think about negotiating with you until your accounts are 90 days or more past due and at that point, late fees and other penalties are starting to multiply. 

Decide Whether to Work with an Illinois Debt Settlement Company

It takes a lot of time and effort to settle debts on multiple accounts. It is important to take this into consideration if you’re thinking about negotiating with your creditors directly. You don’t have the knowledge that an Illinois debt settlement company does about the kinds of offers creditors typically accept. You also risk getting bad information from the internet if you need to reference information during the negotiation process, as you’ll have no one with experience in debt settlement matters to talk to if you run into issues. With that said, negotiating with your creditors directly can save you a lot of money. If you’re organized and feel confident in your ability to make it work on your own, it is certainly your right to do so. Whichever option you choose, simply know that there are advantages and disadvantages associated with each. 

Research Illinois Debt Settlement Companies

If you seek help, avoid scams by knowing how to spot red flags. For example, if a company makes guarantees or says “stop talking to your creditors” without explaining the risks of this approach, be concerned. You’ll also want to research the reputation of any companies you’re interested in working with. Check with the Better Business Bureau and/or the Illinois consumer protection division in the attorney general’s office for a history of company complaints. 

Ideally, you’ll want to find a trustworthy company which will explain any conditions on its services upfront. You will be provided with a timeframe for results and won’t be charged any service fees before they settle your debts. They will also explain risks, like damage to your credit score, that can occur as a result of the debt settlement process. You will be kept informed about the debt settlement negotiation and any settlement offers on an ongoing basis. Please note that Illinois residents benefit from the Debt Settlement Consumer Protection Act, which allows them to cancel a contract with a debt settlement company at any time. 

How to Make your Debt Settlement Work

Staying current with your payments is the key factor for Illinois debt settlement success. What tips and tricks can help you with making timely debt payments? If you get paid semi-monthly, schedule the payment for the 16th if you get paid on the 15th. Avoid having your settlement payments fall at the same time your rent or mortgage is due. Set up a system to have money set aside to cover any emergencies or large one-time expenses like annual car registration fees. Also, make extra payments when you can from part of an income tax refund or birthday money. All of this may sound very grueling and harsh. However, think about how you will feel when you are debt-free. Build-in some rewards for all your hard work, like treating yourself to a movie, when you pay off a credit card for less than the full balance owed. Celebrate in some small way every time you settle with a creditor so that you remain motivated to see your debt settlement process through to the end.

If you have little or no money saved for emergencies, you can use a credit card to pay for unexpected expenses and set up a payment plan to get this new debt paid off as soon as possible if an emergency arises when you’re trying to settle your debt. But be aware that there are risks if you keep one or more credit cards open while trying to settle others. This can be especially true if you have more than one credit card with the same bank. The bank may close the account with a lower balance. Continuing to use credit cards can impact the debt negotiation process and settlement offers you get. Credit limits on the cards you are trying to keep might be reduced. If you are working with an Illinois debt settlement company, you can discuss the benefits and risks of leaving one or more credit cards out of the debt settlement process to use for emergencies.  

Alternatives to Debt Settlement

Creditors may refuse to settle your debts. If this happens, these creditors may sue you or continue with the collection process. Or, you may simply not be in a financial position to make settlement offers in the first place. As a result, debt settlement may not be in your best interest depending on your specific financial situation. Thankfully, there are other options for Illinois residents who want to manage and ultimately eliminate their debt. These options include securing a debt consolidation loan, entering into a debt management plan, and filing for Chapter 7 bankruptcy. Your credit counselor can help you review these options if debt settlement is likely not your best option. 

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Illinois Debt Consolidation

Debt consolidation allows you to streamline your current debt repayment approach by combining your debts into a single account which is paid monthly. This process can be accomplished by entering into a debt management plan (explained below) or securing an Illinois debt consolidation loan. Additional benefits of debt consolidation may include saving money on interest, lowering your monthly payment amount due, and avoiding paying fees for multiple late or missed payments. Securing a debt consolidation loan with favorable terms is an option only available if you have good or excellent credit. 

Illinois Debt Management Plan

A debt management plan or DMP is another alternative to debt settlement. A DMP does not require you to take out a new line of credit and can serve as a viable option even if your credit score is not high enough for you to qualify for a low-interest rate loan. An Illinois DMP streamlines your debt so that you’re making one monthly payment on your debts instead of several. You’ll submit that payment to a nonprofit credit counseling agency, which will then distribute your funds to your creditors per the terms of your plan. Your credit counselor can help you construct an affordable DMP with favorable terms. This is generally the most widely accessible debt management option available to the public, regardless of one’s credit history. 

Illinois Bankruptcy

Sometimes, the only way to consolidate your debts is to file an Illinois bankruptcy case. 

You may fear the idea of filing for Chapter 7 bankruptcy because this debt relief option will temporarily lower your credit score. However, many filers learn that they’re better able to rebuild their credit after filing for bankruptcy than they were when they were still mired in debt. If you have little or no money left over to pay creditors once you pay your monthly living expenses, consider making an appointment for a free consultation with a bankruptcy lawyer in your area. Upsolve may be able to help you file for free if you can’t afford the services of a bankruptcy lawyer.  

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