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How To Settle Your Debts in Minnesota

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In a Nutshell

Below, you will find all the tools you need to achieve financial freedom using a debt settlement company.  This article will discuss different resources for you to use to find a good debt settlement company to work with. You will also get a brief explanation of other debt management options that you may want to consider if debt settlement doesn’t sound like a good fit for you.

Written by Attorney Karra Kingston
Updated February 6, 2024

Struggling financially is a way of life for many Americans. But you don’t have to continue struggling forever. There are many debt relief options that can help you take back control of your finances. One of those options is debt settlement. In this article, we will primarily discuss debt settlement as an option to help you get rid of your debt and give you the tools you need to get you back on the right path. 

Debt settlement is where you negotiate with a creditor to accept less than the total amount of your debt. Essentially, you and the creditor agree that you’ll only pay a percentage of what you owe. Usually, this amount will be a lump-sum payment or a short installment plan.

You may be wondering why your creditor will accept less than what is owed. Creditors know that once an account becomes delinquent (usually over 90 days) the likelihood of them getting any money on the account is slim. So creditors would rather get something than risk losing everything. Creditors also don’t want to run around trying to collect payments from people because it takes more time, effort, and money to do so. Instead, creditors would rather take a lump sum payment upfront. 

Debt settlement works for anyone who is unable to manage their current debt load and has mostly unsecured debts like credit card debt and medical bills. To be a good candidate for debt settlement you will need to be behind on your bills and have the ability to offer lump-sum settlements. Creditors will not want to settle with you if you're up to date on your accounts because they believe that you are able to make the payments.

Debt settlement is not a good option if you can barely make ends meet. You will need to set aside savings to offer your creditors, so if you’re living paycheck to paycheck, you may want to look into filing a Chapter 7 bankruptcy instead. 

Further, only consider debt settlement if you have unsecured debts like credit cards or medical bills. Keep in mind that if you have payday loans, title loans, or online loans that originated outside of the country creditors are not likely to enter into any settlement agreements with you.

As with any debt relief options you will want to research the pros and cons of each before you sign up. You should know some of the risks associated with debt settlement before entering into any debt settlement program. One of the initial steps prior to entering into any program is to make sure that your creditors will agree to a debt settlement. Creditors are not obligated to agree to settle any debts so make sure they are willing to work with you or a debt settlement company before starting.

Next, make sure that you really can’t pay your debts. You must be behind on your accounts before you even begin any settlement talks. If you are current on your debts and stop making payments because you want to settle the accounts you should know that any late fees, penalties, or impact on your credit score your missed payment has, is irreversible. You should also know that debt settlement could land you with a higher tax bill at the end of the year. Any forgiven amount over $600 is considered taxable income for IRS purposes and may increase your tax obligations.

Last, there are a lot of debt settlement companies out there. Unfortunately, there is no shortage of Minnesota debt settlement companies that are scams and prey on vulnerable people who are seeking help. Read more below to find tips on finding a reputable debt settlement company to help you. 

Learn More Through Free Nonprofit Credit Counseling

Debt settlement isn’t a right fit for everyone. A good way to find out about different debt management solutions for you is by looking into credit counseling. Credit counseling allows you to speak with a credit counselor about your financial situation. You will be given a free initial consultation with a nonprofit credit counseling agency. They will sit with you and review your credit report, finances, and income and decide the best option to get you out of debt.

You should always make certain that the credit counseling agency is accredited by the National Foundation for Credit Counseling (“NFCC”) so that you know you are working with a reputable company. The credit counselor will talk about your personal finances and goals and recommend a personalized action plan to help you achieve both your short-term and long-term financial goals. Some options your credit counselor may suggest for you are debt consolidation, a debt management plan, or bankruptcy. When you speak with your credit counselor, you should see if they can recommend a reputable debt settlement company. 

How To Settle Your Debts in Minnesota

Below, you will find all the tools you need to achieve financial freedom using a debt settlement company.  This article will discuss different resources for you to use to find a good debt settlement company to work with. You will also get a brief explanation of other debt management options that you may want to consider if debt settlement doesn’t sound like a good fit for you. 

Collect Details About Your Debts 

The first step to making sure your debt settlement starts smoothly is collecting all of your financial documents. You will want to know how much debt you have, the interest rate, and your current monthly payment for each. Having copies of your most recent statements is essential to knowing where you stand. You will also want to categorize the different types of debts you have, like unsecured debt, secured debt, student loans and medical bills. Have a complete financial picture for yourself so that when you speak with your creditors, you will be knowledgeable about your situation. This will help you explain your financial situation clearly and efficiently. Get a copy of a free credit report if you need help organizing your debt. Keep in mind that your accounts may be with different companies than you originally got the loan or credit card from. It’s common for banks to assign or sell delinquent accounts to collection agencies or other third-party debt collectors, so the names may appear different on your credit report than what you expected. 

Collect Details About Your Ability to Settle Your Debts 

The best settlements are usually lump sum settlements. If you can’t do this, you’ll need to be able to pay the settlement amount in monthly payments over a short period. To make sure that your debt settlement works, you’ll need to know your income and expenses and how much you have available to put away to make reasonable settlement offers. As you go through your income, you should look at your taxes, your spouse’s income, and any other sources of income from family members. You should know that if you’re on social security/ disability your income is protected from creditors. Meaning, they will not be able to garnish your social security income for non-payment. Make sure to not include overtime in your monthly income; otherwise, you’re setting yourself up for failure. Go through your expenses with a fine tooth comb and make sure you have accounted for everything. Don’t forget to include a small fund for emergencies. If you don’t have enough to put away each month, then you should avoid trying a debt settlement. It’s never a good idea to withdraw money from your retirement to pay your bills. Wiping out your retirement account can cause a hefty tax bill and leave you with nothing when it is time to retire. If you are considering this, you should look into bankruptcy first, as you can protect your retirement accounts in a bankruptcy. 

Learn About the Costs to Settle Your Debts in Minnesota

Unfortunately, debt settlement is not free. You will incur costs, whether you handle debt negotiation on your own or whether you work with a Minnesota debt settlement company. Some of these costs will include late fees on your accounts as well as penalties as your account continues to default. If you choose to work with a Minnesota debt settlement company, you will need to find out about what fees you will be charged up front. Usually, debt settlement companies take out a percentage of your total debt owed. Some companies even charge a percentage of the total amount settled (or saved) at the end. You should always try to hire a Minnesota debt settlement company that collects their fees at the end based on the amount they save you. This will entice them to get you a better settlement and save you money. The only time you should only be charged any fee is after a debt is settled. If a Minnesota debt settlement company tries to charge you before reaching any settlement agreements, run the other way! Sometimes, there are even fees associated with a bank account, if the Minnesota debt settlement company requires an escrow account where you will put your monthly savings into. 

Decide Whether to Work with a Minnesota Debt Settlement Company 

Don’t listen to any company that tells you that you have to hire a debt settlement company in order to settle your debts. You don't need to hire a Minnesota debt settlement company to pursue debt settlements. As long as you’re organized and comfortable making uncomfortable phone calls, you can settle debts directly with your creditors without needing to hire a company.  This can be quite time consuming and daunting for some people, but if you stay organized and put some time aside each day to settle your debts, you can do it! Handling it yourself can save you money and keep you in control of your financial situation. If you decide you want to work with a Minnesota debt settlement company that’s okay too. Many debt settlement companies have inside knowledge and know how to speak with debt collection companies, since they do it almost every single day. One advantage of hiring a debt settlement company is they may know which creditors might be difficult to deal with and how to escalate the conversation to someone who can help get you a better deal on your settlement. Also, if you don’t want to hire a debt settlement company to help you, you can also look into hiring an attorney to settle your debts for you. 

Research Minnesota Debt Settlement Companies 

To help ensure that you're finding a reputable Minnesota debt settlement company, there is some initial research you should do. First, educate yourself on what information a Minnesota debt settlement must be open about. They must be upfront about their price and their terms. They also must give you a time frame for how long this process will take and provide you with an estimate with how much you'll need to save before they make any offers; all without making guarantees. They should also go into detail about what will happen as you continue to become delinquent on your accounts. They should tell you that being delinquent on your accounts may end up with a possible lawsuits against you by your creditors. To avoid ending up with a company that is a scam look out for these warning signs by any Minnesota debt settlement company:

  • They guarantee they will get you settlements (no creditor has to agree to any settlement).

  • They hype a “new government program.” 

  • They tell you to stop communicating with your creditors. 

  • They try to get payments from you before a settlement is reached. 

  • They have negative reviews. 

  • They are trying to sell you something rather than really caring about your financial situation. 

  • They don’t look at your finances but just offer to sign you up. 

To make sure the company you’re dealing with is reputable, check the Minnesota attorney general’s office for any complaints. The Consumer Protection department is another good resource to look at. Additionally, check with the Better Business Bureau to see how the Minnesota debt settlement company is rated. 

How to Make Your Debt Settlement Work 

To make sure you’re on the right path, there are some things to make sure you consider. If your settlement involves a monthly payment, make sure that it's not due at the same time as your mortgage or any other large expenses. Next, make sure that you’re putting money aside each month for emergencies. If an emergency comes up and you don’t have the funds, missing a payment on your debt settlement can be a disaster, causing the full balance to become due immediately. 

Alternatives to Debt Settlement 

Debt settlement is a good debt management strategy for certain people. In order for it to work, you will want to ensure that you are a good fit. If you aren’t, don’t worry there are other debt relief options available to you. Entering into a debt settlement program when you really aren’t a good fit is only a recipe for disaster and can put you into a much worse financial situation. Below is a brief explanation of other debt relief options that are also available, including debt consolidation, debt management plans and bankruptcy. 

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Minnesota Debt Consolidation

Debt consolidation is taking out a new loan to pay off your current debts at a lower interest rate. This allows you to have one monthly payment. You can save money if you qualify for a lower interest rate, but you will have to have a good credit score to do so. Debt consolidation can be done by taking out a home equity loan or debt consolidation loan from a bank. 

Minnesota Debt Management Plan

A debt management plan is a way to put all of your payments into one monthly payment that meets your budget. With a Minnesota debt management plan (DMP) you work with a credit counseling agency to create a plan with your creditors to pay your debts off in full. This can usually benefit you by providing you with lower interest rates and one lump sum monthly payment. They can also sometimes reduce or eliminate late fees and penalties which can save you a lot of money. 

Minnesota Bankruptcy

If you don’t have money left over to pay anything back to your creditors, bankruptcy is another debt relief option. In Chapter 7 bankruptcy, your debt is discharged, meaning you won’t have to pay any of your debt back and you can start over fresh. If you're thinking about filing for bankruptcy you should meet with a bankruptcy attorney. Most bankruptcy lawyers provide free consultations that you should take advantage of. They will be able to tell you if you qualify for bankruptcy and what other options you should look into.

If you decide you want to file a Minnesota bankruptcy, you can check Upsolve’s free screening tool to see if you qualify for free help with your bankruptcy. Upsolve gives you all of the tools you need to file your bankruptcy without a lawyer!

Written By:

Attorney Karra Kingston


Ms. Kingston began her career as a bankruptcy attorney. She has appeared in front of many federal court judges and has helped numerous debtors obtain a fresh start. Ms. Kingston understands the complex federal rules for discharging debt. While working as a bankruptcy attorney, Ms... read more about Attorney Karra Kingston

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