How to Settle Your Debts in Montana

Collect the Details About Your Debts

To set up a successful debt settlement program, you’ll need to take a close look at the most recent statements for your credit card debts and other debts. Look at the interest rates, minimum payments, and outstanding balance on each of these bills. Break these bills into secured debts and unsecured debts. From the unsecured debts, separate the student loans. Break any of these loans into private loans and federal student loans. Federal loans can’t be settled, but they can be managed in other ways. However, some private student loans, like many other kinds of unsecured debts, can be settled. Settlement is not a good option for secured debt, which is one of the many reasons why you need to carefully analyze your debts before determining which you’d like to settle and which you’d like to manage in alternative ways.

When analyzing your debt, make sure to obtain your free credit report from all three credit bureaus. You may find debts on these reports that you've forgotten. You may also find that some of your debts are now held by collections agencies. When negotiating your debt settlement, you'll need to negotiate with these debt buyers instead of your original creditors. If you find any errors on your credit reports, be sure to correct the errors. This effort may increase your credit score.

Collect Details About Your Ability to Settle Your Debts

If you’re building a balance with a debt settlement company or making installment payments directly to your creditor(s), and you don’t have a lump sum of money already available and you’re not selling assets to fund your offers, you’ll need to stick to a budget when navigating the debt settlement process. It’s important to set up a good budget to make sure you always have the money available for these payments, as failure to make even one payment on time could sink your debt settlement agreements and leave you in a worse financial position than you were in when you started. 

The worst personal finance mistake you can make is to make withdrawals from your retirement plan to pay for debt settlements. If you’re struggling to make your budget work, explore debt management alternatives - DON’T pull from your retirement accounts to fund settlements. When using retirement money to settle debts, the tax consequences are severe in that you pay the tax penalty, the income tax on the money withdrawn, and the discharge of indebtedness income. If a Montana debt settlement company recommends that you use your retirement savings to settle debts, you may want to file a complaint with the Montana Office of Consumer Protection.

Finally, note that if you're successful in settling any case, the IRS will make you pay income taxes on the difference between the amount due and the amount you settled for. Even though you haven't received any money, this discharge of debt is taxable income. 

Learn About the Costs to Settle Your Debts in Montana

If you choose to work with a Montana debt settlement company, you will incur more costs than you would if you negotiated with your creditors directly. First, you will incur the fees that the debt settlement company charges. Montana debt settlement companies charge their fees based on a percentage. While this can be a percentage of the total amount of debt, it’s usually a percentage of the total amount the debt settlement company saved for you. It’s best to use a firm that charges their fee based on how much money they save for you because it gives the company an incentive to get you a great deal. 

Also, because debt settlement companies aren't allowed to hold your money, a third-party administrator that doesn't work for the debt settlement company will hold your money in a special account. This account is sometimes called an escrow account. You will incur administrative fees and bank charges associated with that account. 

Decide Whether to Work With a Montana Debt Settlement Company

You can settle your debts without using a Montana debt settlement company. If you do the settlement negotiations yourself, you’ll save the money you would have paid in fees for the debt settlement company and bank account administrator. If you decide to do the make settlement offers yourself, make sure to get written settlement agreements before sending any money. 

It should also be noted however, that there are disadvantages to negotiating a settlement yourself. If you’re like most people, negotiating with creditors isn’t something you do every day. A debt settlement company has done this many times. You won't have the insider knowledge about what kinds of offers the creditors will accept. The debt settlement company usually will have this insider knowledge. When you need help, your only place to turn for information is likely going to be the Internet. It will be difficult to know if the information you're getting is correct. Also, debt negotiation is stressful and time intensive. Letting someone else “do the heavy lifting” can be worth the fees a settlement company charges you. 

Research Montana Debt Settlement Companies

Make sure that you understand a Montana debt settlement company's prices and their terms of service before you agree to work with them. By law, the company must explain how it calculates its fees and what its conditions of service are. If a debt settlement company asks you to stop making monthly payments on your debts to enhance your negotiating position, they must explain the negative consequences of not paying your debts. These consequences include damage to your credit report, collections calls, and potential lawsuits by your creditors. They must also tell you about expenses (including late fees and higher interest rates on other accounts) that you may incur as a result of your default. When you put funds into an escrow account, the debt settlement company must tell you that all these funds are yours and that you're entitled to the interest earned in the escrow account. The creditor can only take money from the escrow account after settling with a creditor.

If you're considering hiring a business to handle your finances, make sure to check the Better Business Bureau's rating of the business first. Since some debt settlement firms are scams, it's important to check the company’s reputation with the Montana Department of Justice - Office of Consumer Protection's Complaint Database. Montana has one of the best such services in the country. To get more information than is provided in the complaint database, call the Office of Consumer Protection at one of these phone numbers: (406) 444-4500 or toll-free at (800) 481-6896.

How to Make Your Debt Settlement Work

If you’ve agreed to a payment plan arrangement with a Montana debt settlement company or you’re making short-term installments directly to a creditor, know that staying on budget is one of the most important parts of the debt settlement process. Failing to make even a single payment on time could cause this process to fail and you could ultimately be left in a worse financial position than when you began negotiations.

When setting up this monthly budget, make sure you provide for expenses that happen less often than monthly. Such expenses would include annual insurance payments or routine car maintenance expenses that may need attention during your debt settlement period. Also, make sure to set aside some money in your savings account for emergency expenses. Not having money set aside for these expenses can blow your budget and cause you to become unable to make your debt settlement payments on time. Create a workable budget and stick to it. 

Alternatives to Debt Settlement

Since debt settlements have one of the most negative impacts on your credit score of all debt management solutions available to you, it's unlikely that your credit counselor will recommend that you pursue debt settlement unless your situation is ideal for this option. In most cases, your credit counselor will recommend that you consider securing a debt consolidation loan or entering into a debt management plan. Both options streamline your debt (ideally) with more favorable terms than you’re paying now. In some cases, a credit counselor is more likely to recommend a bankruptcy than these alternatives.