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How to Settle Your Debts in New Jersey

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In a Nutshell

The remainder of this guide will give you a preview of whether your credit counselor is likely to recommend debt settlement as an option for your situation. If you decide to proceed with debt settlement, this guide can help you determine whether you should handle the entire process on your own or work with a New Jersey debt settlement company.

Written by Upsolve Team
Updated May 21, 2020

Having debt you can’t afford to pay can feel like trying to escape quicksand. The more debt payments you miss, the more you owe in late fees and other penalties. The collection calls seem to come all day and night, and debt collectors can be ruthless. It can feel like no matter how hard you’re trying to dig yourself out of debt, there is no effective way to regain solid financial footing again. Thankfully, if you’re feeling this way, there are options available to you. American popular culture doesn’t discuss these options openly very often, so you may not be aware of all the things you can do to help manage your debt more successfully.  

For example, you may be able to use debt settlement to resolve a debt for a fraction of what you owe. This process sounds very appealing at first glance, but it does come with some risks and consequences you should be aware of. This guide will explore the debt settlement process and whether it may be a good option for your unique situation. At the end of the guide, you’ll be able to read an introduction to some debt management alternatives in the event that debt settlement isn’t a good option for you at this time. 

Debt settlement plans effectively allow you to resolve your debts for much less than what you actually owe. You can do this by entering into debt negotiation directly with creditors on your own, or you can work with a New Jersey debt settlement company. The information below will help you determine which approach may be best for you. 

The general rule of thumb when considering debts for settlement is to only settle unsecured loans, such as credit cards. Loans secured with collateral, such as car loans, are not ideal candidates for settlement because the creditors won’t generally allow you to keep the collateral if you are unable to pay the total amount owed. 

The unsecured loans most commonly included in debt settlement plans are: 

  • Bank-issued credit cards

  • Store-issued credit cards

  • Fuel cards

  • Signature loans

  • Outstanding balances on vehicle repossessions

  • Collection accounts 

Before you commit to the debt settlement process, you’ll also need to consider whether you are a good candidate for this particular debt management solution. If you are still current on your accounts, creditors are not likely to accept a settlement offer. What incentive do they have to accept less money through a settlement plan from someone who has displayed the ability to remain current? Similarly, you won’t be in a position to settle your debts if you can’t either fund lump sum offers immediately (through assets available to you now or the sale of property) or save up enough to fund offers over a 2-3 month period. If you simply can’t fund settlement offers, you may want to read the “credit counseling” section below and then speak with a credit counselor about whether your situation may be a good candidate for a debt management plan instead. 

With that said, if you are 90+ days behind on payments, and you have enough to settle but not enough to catch up on the total amount owed, you are likely an ideal candidate for debt settlement. Whether you work with a New Jersey debt settlement company or decide to settle on your own, this process may help you to regain solid financial footing moving forward. 

Learn More Through Free Nonprofit Credit Counseling

As part of their services, accredited, nonprofit credit counseling agencies offer free credit counseling to anyone interested in learning more about their debt management and debt relief options. Even if you are not considering debt settlement as a possible debt relief solution, make sure to schedule a free credit counseling session! There is literally no drawback to receiving free advice from a trained professional, as you’re under no obligation to follow the recommendations they give you.  

During your session, a credit counselor trained in money management will analyze your current financial situation, as well as short and long-term goals, to determine the most effective debt relief strategy for your unique needs. During your credit counseling session, your counselor will help you gain a more complete understanding of what you need to do to achieve your financial goals, and how long this process should take. You have absolutely no obligation to follow this advice. However, you will walk away with an action plan and a better understanding of your personal finance situation. Your counselor’s recommendations may or may not include debt settlement.  

How to Settle Your Debts in New Jersey 

The remainder of this guide will give you a preview of whether your credit counselor is likely to recommend debt settlement as an option for your situation. If you decide to proceed with debt settlement, this guide can help you determine whether you should handle the entire process on your own or work with a New Jersey debt settlement company.

Collect the Details About Your Debts 

Before meeting with a credit counselor, approaching a debt settlement company, or attempting to negotiate with creditors on your own, it is in your best interest to be fully prepared. To get ready for managing your debt, there is certain information you should gather, including statements from your bank accounts, credit card companies, and other creditors. These statements will provide most of the information you need, including types of debt, amount of debt, current minimum monthly payments, interest rates, and outstanding balances,. The only other documentation you should need right away is a free copy of your credit report, which will include creditor information and will likely list all of your outstanding debts. Your credit counselor will use this information to help formulate a plan of action that you can choose to follow, if you wish. 

Collect Details About Your Ability to Settle Your Debts

Especially if you don’t have immediate access to funds that will allow you to pay your settlement offers, you’ll need to determine your disposable income before you can accurately determine whether debt settlement is a good option for you. Disposable income is the amount of money you have left after paying your monthly expenses. Whether you enter into a debt management plan, debt settlement plan, or decide to file for bankruptcy, your income and expenses will factor heavily in determining if you are a good candidate for these programs. Why? Because if you can’t save up money quickly to fund settlement offers (or pay your creditors monthly via a debt consolidation loan or debt management plan), this may be a sign that bankruptcy is your best option at this time.

If, however, debt settlement seems like a good fit for your situation, there are certain steps you can take to make the process work for you as efficiently, and quickly, as possible. Some useful tips include: 

  • Do not include credit cards with small balances in your settlement; after accounting for debt settlement fees, it will cost you less to pay them off separately. 

  • Resist the temptation to use retirement funds to cover debt settlement payments. The IRS penalties can wreak havoc; tax consequences and fees you pay for early withdrawal, and the fact that you can seriously damage your future by draining your retirement funds, make this a terrible idea. 

If you don’t have enough disposable income available, Chapter 7 bankruptcy may be your best option.

Learn About the Costs to Settle Your Debts in New Jersey

Financial problems are expensive. It’s sad and unfair, but it’s true. The moment you fall behind on payments, late fees and other penalties begin to accrue, making it even harder to remain current. Once you get to the point of considering debt settlement, these fees could account for thousands of dollars of your debt. If you choose to work with a New Jersey debt settlement company, you will have to pay fees for their services as well. Debt settlement companies usually charge either a percentage of total debt, or a percentage of total savings. Opt to work with a company that charges based on the savings they obtain for you, as this approach provides the company an incentive to make a great deal on your behalf. Debt settlement is an unquestionably costly process, but oftentimes, it is simply the best option available for an individual consumer. 

Decide Whether to Work with a New Jersey Debt Settlement Company

Although anyone can settle their debts on their own, not everyone should. To determine whether you should negotiate directly with creditors or work with a debt settlement company, ask yourself the following questions. If you answer yes to all of them, self-directed debt settlement might be a good option for you:

  • Do I feel comfortable communicating and negotiating with creditors on my own? 

  • Do I have enough time to devote to connecting with my creditors repeatedly?

  • Do I have a minimal number of delinquent accounts? 

  • Have I met with a credit counselor to go over different debt relief options? 

  • Do I have a good understanding of my financial situation? 

The main benefits of settling on your own are cost savings and the ability to remain in control throughout the process. That being said, if you are intimidated by negotiating with creditors, working with a debt settlement company may save you in the long run. Reputable companies can handle the “heavy lifting” on your behalf and understand how to get you the best possible deals. 

Research New Jersey Debt Settlement Companies

If you decide to work with a New Jersey debt settlement company, it is important to research the company’s reputation before entering into any type of agreement. While most debt settlement companies are reputable, there are scams out there, too. And even a company that is not an outright scam may have a history of consumer complaints. Fortunately, a simple internet search for complaints is quick, easy, and free. Visit the websites for the New Jersey Attorney General and the Better Business Bureau to see if any consumer complaints have been registered regarding the company you are considering working with. 

How to Make Your Debt Settlement Work

Once you have decided whether to work with a debt settlement company or handle creditor negotiations on your own, it is time to take steps to ensure that your debt settlement arrangement works for you. You can either settle with an upfront, lump sum payment, or by creating a monthly payment schedule. If the latter, avoid setting up a payment schedule that you won’t be able to stick to. 

Step one is to calculate the amount of income you have left once you have paid your monthly expenses, both fixed and variable. Fixed expenses are costs that remain fairly stagnant from month to month, such as rent or mortgage, and auto loan payments. Variable expenses, on the other hand, can vary widely from month to month. These include groceries, entertainment, gas, and medical bills. The amount of money that remains after all these expenses have been paid is referred to as disposable income. 

After you calculate disposable income, determine how much of it can be used for monthly debt settlement payments. And choose a due date that makes sense for you. If your mortgage and car payment are due at the beginning of the month, it may be wise to choose a debt settlement due date around the middle of the month. Debt settlement works for thousands of Americans every year; don’t set yourself up for failure before you even get started.

Alternatives to Debt Settlement

You may decide that debt settlement is not right for you. This doesn’t mean you are out of luck. Multiple debt relief solutions exist for individuals who are overwhelmed by debt they cannot afford to pay. Each of these potential solutions has advantages and disadvantages, depending on your unique circumstances. As such, it’s very important to meet with a credit counselor and take advantage of a free counseling session before deciding on a particular type of debt relief program, including any of those listed below.

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New Jersey Debt Consolidation

Securing a debt consolidation loan is probably the least likely solution for a low-income individual who is struggling to make minimum payments. This is because a debt consolidation loan is a bank loan that requires good credit. 

Generally speaking, people who are having a hard time paying their debts have already fallen behind in payments, thus damaging their credit score. As such, they will probably not qualify for a debt consolidation loan. If, however, you have remained current on your loans despite your struggle to pay them, this may be an option for you. A New Jersey debt consolidation loan combines multiple smaller loans into one. Instead of having to pay on several loans each month, you can now pay only one creditor. Consolidating loans in this way generally results in a significantly decreased monthly payment and more favorable interest rates. 

New Jersey Debt Management Plan

As a New Jersey debt management plan is not a loan, good credit is not required to enter into one. That being said, the ability to pay your loans in full is key to success in a debt management plan. This is because these plans involve paying the full amount to the creditor, but on a schedule and with a payment that works better for you than the current arrangement set by the creditor. If you don’t have the ability to fund debt settlements, you can work with an accredited, nonprofit credit counseling agency to set up a DMP. Once created, you’ll make one monthly DMP payment to the agency, which will then distribute this payment to your creditors per the terms of the plan. This is a great way to make your debt more manageable. 

New Jersey Bankruptcy 

If after reviewing all the potential options for debt relief, you have determined that bankruptcy is the best solution for you, Upsolve can help. We are a non-profit that educates low-income individuals on Chapter 7 bankruptcy, connects them with attorneys in their area, and helps eligible individuals file for free. If you are considering New Jersey bankruptcy, visit our website today to learn more. 

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