How to Settle Your Debts in Maryland

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In a Nutshell

This guide will walk you through the debt settlement process, step by step. If you ultimately decide that debt settlement isn’t a good option for you, you can read about debt management alternatives at the end of the piece.

Written by Upsolve Team.  
Updated March 18, 2020


Many Marylanders, from the mountains to the DC suburbs, Baltimore to Ocean City, suffer as a result of financial challenges every day. Most often, these challenges are no fault of their own. They could stem from a lost job, a significant medical expense, a death in the family, or any number of other causes. If this situation sounds familiar to you and you’re similarly struggling to remain current on all of your accounts, know you’re not alone. Thankfully, there are debt management and debt relief options available to help you regain solid financial footing. For example, if you have some money available to propose an offer to at least one of your creditors, you may want to consider the debt settlement process. 

In a Maryland debt settlement, you make a large lump-sum payment to a creditor for less than the full amount due in exchange for partial debt forgiveness and the closure of your account. Sometimes, a creditor will allow a short term installment agreement of a few payments. However, creditors generally won't allow more than 2-3 settlement payments because they don't want to risk that you’ll default on your agreement. It’s important to note that since you're not paying the full amount due, this process will temporarily damage your credit score. But by eliminating your debts through a debt settlement, you’re able to start rebuilding your credit over time. 

Creditors are often willing to settle with delinquent account holders because they know they rarely get paid in full when a debt becomes more than 90 days past due. Most creditors prefer to "lose the least" money by reaching settlement agreements with account holders. If they don't settle, they send the cases to debt collectors to make collection calls, they sell the debts to debt-buying firms, or they refer to matter to attorneys to sue you and garnish your wages. Generally speaking, if you’re in a financial position to make a settlement offer, it’s a process strongly worth your consideration. You can negotiate a debt settlement yourself or you can hire a Maryland debt settlement company to negotiate for you.

Learn More Through Free Nonprofit Credit Counseling

You should begin your search for solutions to your financial challenges by scheduling a free credit counseling session with a nonprofit credit counseling agency. Don't confuse a nonprofit credit counseling agency with their for-profit cousins: debt-relief companies and debt settlement companies. Nonprofit, accredited credit counseling agencies have no agenda beyond helping clients find viable solutions to their financial difficulties. During your free credit counseling session, your trained and certified credit counselor will examine your personal finances to assess your income, expenses, and your debts. In this confidential session, you and your counselor will work to set financial goals. By the end of the first session, your credit counselor will recommend a debt management solution that's custom-tailored for your situation. The counselor may recommend budget counseling, debt consolidation, debt management plan, or bankruptcy. The least likely solution a credit counselor will recommend is a debt settlement because of the harm it does to your credit score. For most people, a debt settlement plan isn't the best option. However, your counselor may be able to recommend a reputable Maryland debt settlement company for you if you’re a good candidate for this process. 

How to Settle Your Debts in Maryland

This guide will walk you through the debt settlement process, step by step. If you ultimately decide that debt settlement isn’t a good option for you, you can read about debt management alternatives at the end of the piece.


Collect the Details About Your Debts

The first step in a successful debt settlement process involves taking a close look at your debts. Look at your most recent bills and pay particular attention to the outstanding balances, minimum payments, and interest rates. Determine if the bills are unsecured debts or secured debts, as debt settlement is generally only an option for unsecured debts. If you can’t find bills for all your debts, the best place to look is the online banking sites for your credit card companies, banks, and other financial companies. Use the information from these bills to decide which debts are candidates for settlement and which creditors you want to prioritize. 

It's also important to request a free credit report for all three credit bureaus. Getting all three bureaus ensures that you’ll find every debt that's been reported to any credit bureau. The credit reports will help you find debts that you've forgotten, debts sold to a debt-buying firm, and possible errors on your credit report. If you find errors in your credit report, you can improve your credit score by correcting these errors. If any of your debts have been sold to collectors, these companies are your new creditors and you should approach them directly concerning settlement.

Collect Details About Your Ability to Settle Your Debts

If you will be hiring a Maryland debt settlement company to help you through this process, you will probably be making payments into an escrow account to build balances that will be used to make settlement offers to your creditors after a short period of time. In this case, or if you’re making short-term installment payments directly to creditors, staying on budget is going to be very important to the success of your debt settlement process. Even one missed payment can nullify your debt settlement agreement. Therefore, you’ll want to take a close look at your income and expenses to determine how much you have available to make these payments and how often you can make these payments (realistically).

It often makes sense to try to leave your credit cards with small outstanding balances out of the debt settlement process. Keeping these cards will give you some flexibility for handling an emergency expense. Keeping these cards current and paying them in full will also help you to rebuild your credit score.

The worst possible financial mistake you can make is to take money out of your retirement account to settle your debts. The money taken out of the retirement account may be considered taxable income by the IRS and you may pay a tax penalty for being too young when you take it out. These tax consequences aren't your only problem. This is money that's exempt from creditors. Your creditors can't touch this money, so why would you give this money to them? If you can’t obtain enough income to settle your debts without raiding your retirement accounts, it’s time to consider some debt management alternatives. 

Learn About the Costs to Settle Your Debts in Maryland

Since 2010, the Federal Trade Commission (FTC) has forbidden debt settlement companies from charging any fees until they've settled a debt on behalf of a client. Most Maryland debt settlement companies charge a fee based on the percentage of savings they negotiate for you. This is the best payment structure possible, since they only get paid if they're successful in securing you a good deal. Maryland's laws for debt settlement companies and debt management companies are available on the Attorney General's Consumer Protection Division website. Each time the Maryland debt settlement company settles a debt for you, the debt settlement company can collect the part of the fee that relates to that debt settlement agreement. Remember, the debt settlement company can't collect its fees until it settles debts for you, so if the company you’re working with tries to collect money in advance, take your business elsewhere.

Decide Whether to Work With a Maryland Debt Settlement Company

You don't have to hire a Maryland debt settlement company. Debt settlements negotiation is a process that you can approach on your own. If you're well organized, you’re a good negotiator, and you’re able to keep up with a lot of facts and figures, you might benefit from a “DIY” approach to debt settlement. There are advantages to pursuing your own debt settlement. Most pressingly, you’ll save the money that would have been paid as fees to a debt settlement company. Also, some creditors will only work with their clients. They refuse to negotiate with debt settlement companies. 

With that said, a disadvantage of doing your own debt settlement is that it takes a lot of time, patience, and effort. It can be overwhelming. Hiring a reputable debt settlement company can take this stress off your shoulders and allow you to benefit from “insider knowledge.”

Research Maryland Debt Settlement Companies

You should research a financial company's Better Business Bureau's rating before letting that company handle your money. Although there are honest companies in business, many debt settlement companies are fronts for scams. You need to do your research before committing resources to a reputable company. Another place that you can search for information about a particular Maryland debt settlement company is the Maryland Attorney General's website or its consumer hotline, which can be reached at: (410) 528-8662. If you want to do more online research, you can check the Consumer Financial Protection Bureau's Consumer Complaint Database. This is a nationwide database. Most companies will have a complaint history, but you should be wary if the company you're researching is the subject of many complaints. 

How to Make Your Debt Settlement Work

If you’ve committed to a payment plan to build up a balance with a Maryland debt settlement company or if you have agreed to a short term debt settlement installment plan with a creditor, you’ll need to stick to a budget to make sure these payments get made on time. Failure to submit timely payments can result in a default on your agreement. To better ensure that you remain in a position to make these payments on time, make sure any due dates don't fall at the time of months when you have other large payments due. 

Also, know that if you have two credit cards with the same bank and try to keep one open, the bank may not allow this. Since they will know you're struggling with one of the cards, they will worry that they won't get paid for the one you're trying to keep. For this reason, it's best if you're trying to keep a card, make sure you’re not trying to settle another debt with the same bank.

Alternatives to Debt Settlement

Debt settlement is a debt relief option under very specific circumstances. If you have a lot of money (or property you can sell) at your disposal to fund your settlements and you already have a poor credit score, debt settlement may make sense for you. However, most people struggling to pay their debts every month don’t have a lot of capital that is readily available to fund settlement offers. If debt settlement isn’t the best option for you, it’s time to consider some debt management alternatives. 

Maryland Debt Consolidation

A Maryland debt consolidation loan combines your unsecured debts into one account, which is then paid in monthly installments. The consolidation loan can be a personal loan, credit card balance transfer, or home equity line of credit. For a consolidation to work, your credit score must be high enough that you qualify for a loan that both features favorable terms and is large enough to pay off the debts you wish to include. If your credit score is not excellent, you may be better served by consolidating your loans via a debt management plan.

Maryland Debt Management Plan

A Maryland debt management plan is a form of debt consolidation that uses the services of a credit counseling agency (instead of a loan) to combine your high-interest unsecured debts into a single account. The credit counseling agency will negotiate with your creditors directly to structure a manageable repayment plan. You will then submit a monthly payment to the agency, which will distribute that payment to your creditors per the terms of your DMP. 

Maryland Bankruptcy

Contrary to some myths, most people only lose one thing when they file a Maryland bankruptcy: their debt. Bankruptcy will not negatively impact your credit score forever. On the contrary, within a couple of years after filing bankruptcy, most people have a higher credit score than the day before they filed bankruptcy. However, one drawback to this debt relief solution is the cost of filing bankruptcy. Thankfully, Upsolve has developed a free tool to file a Chapter 7 bankruptcy yourself, if you want to save money on attorneys’ fees. However, if you’d like to consult a lawyer, Upsolve can help you find a qualified attorney in your area.



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