How to Settle Your Debts in New Mexico

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In a Nutshell

Once you decide to pursue debt settlement in New Mexico your next challenge is figuring out how to go about it. Below we will discuss the debt settlement process, step by step. 

Written by Attorney Eva Bacevice.  
Updated January 2, 2020


Figuring out how to deal with your debt payments can feel like a big undertaking but learning about the different debt relief options out there may be easier than you thought. Depending on your situation, there could be multiple ways to get back on track financially. One of these options is called debt settlement. A debt settlement involves paying back less than your total debt to a creditor with an upfront lump sum payment or very short term installment plan. You can do your own debt negotiation, or you can find a reputable New Mexico debt settlement company to work with you through the debt settlement process. While it may sound odd that creditors will agree to settle for less than the full amount that you owe, it actually happens quite a bit. This is because the credit card companies and banks know that once a debt has gone more than 90 days past due, they are unlikely to ever see any money paid on that debt. Therefore, agreeing to some money, ideally upfront in a lump sum payment will act as an incentive for credit card companies and banks to agree to a debt settlement program. Debt settlement works best for people dealing with mostly unsecured debts, like credit card debts, who are already behind in their payments. The ideal candidate for debt settlement would have a reasonable number of debts and access to funds for the lump sum payments or the ability to set aside money to build them up. It is not a good fit for people with a large number of different types of debts, like payday loans, title loans, medical bills, student loans or online loans from lenders outside of the country. It is also not a good option for people who do not have any extra money that they can put toward settlement agreements or are trying to preserve good credit. If you are a good candidate for debt settlement it is important to know some of the downsides and risks to make an informed decision. If you are not behind on your debts currently, your creditors will likely not enter into any settlement agreements. Becoming delinquent to encourage a settlement plan has inherent risks because no creditor has to agree to a settlement plan, but you can guarantee that your credit score will be negatively impacted. If it does work out and you accept settlement offers from your creditors there can also be tax consequences as any amount of debt forgiven over $600 is usually treated as taxable income. Additionally, if you decide that you do want to work with a debt relief company, you need to know what to look out for so that you do not fall victim to a scam or predatory company only looking to make money at your expense. This is not to discourage you from exploring debt settlement for debt relief, but to help you feel confident in your decision and help you get the best possible help throughout the process. 

Learn More Through Free Nonprofit Credit Counseling

A great first step to take when exploring debt relief options is to check out credit counseling from a reputable nonprofit credit counseling agency. This is an opportunity where you can meet with a certified credit counselor one-on-one who will take an in-depth look at your personal finances, including your income, expenses, and amount of debt as well as discuss your financial goals, both short and long term. After reviewing all of your information, they’ll recommend your next best steps, which could include a debt management plan, debt consolidation, or bankruptcy. The initial session is free, and you are under no obligation to continue with the organization or follow their advice. Your best bet is to find a nonprofit credit counseling organization that is accredited by the National Foundation of Credit Counseling (“NFCC”) which lets you know that the agency is held to rigorous standards. While you will not be able to find NFCC accredited debt settlement companies, you can discuss the debt settlement process with your credit counselor to find out if you are a good candidate. 

How to Settle Your Debts in New Mexico

Once you decide to pursue debt settlement in New Mexico your next challenge is figuring out how to go about it. Below we will discuss the debt settlement process, step by step.


Collect Details About Your Debts 

Your first task will be to collect information about all of your debts. You’ll want to pull together all of your most recent statements for credit cards and all other debts to get the necessary details. The information you’ll need to know includes your current interest rates, monthly payments, and outstanding balances. You should also include debts that you’re unlikely to settle, such as medical bills and student loans, to show your creditors your complete financial picture. Note that federal student loans, in particular, are not a debt you will be able to settle. It is also a good idea to get a free copy of your credit report. Often when debts are significantly behind, they are sold to a collection agency. Whenever you want to settle a debt, it’s important to be certain you’re contacting the correct debt collector. After you have collected all of the information about your debts, you can categorize them to determine which ones you might be able to settle. Generally, debt settlement is only an option for unsecured debts like credit cards. 

Collect Details About Your Ability to Settle Your Debts 

Next, you’ll need to collect details about your ability to settle your debts, which is an important consideration to determine if debt settlement is your best option. Remember, creditors have no obligation to agree to settle debts for less than the total amount owed. To get them to agree, you need to offer an incentive such as upfront lump sum payments. And to fund those lump sum payments you need to have access to funding for them, usually building the money up over time. So, your income and budget are big factors to consider. You should begin by figuring out your monthly income. If you are working, you can use your most recent pay stubs to figure this out, although if you have recently been doing a lot of overtime you should look back further to find a pay stub more representative of your regular workweek. If you get paid once a month, then it’s very easy to see what your monthly take-home income looks like. If you’re paid weekly or biweekly, you will need to calculate the monthly amount by multiplying the amount by the pay frequency (26 for biweekly or 52 for weekly) and dividing the total by the number of months (12.) If you’re not working, you should be looking at any income that comes into your home to pay living expenses but do note that social security income is protected from creditors. After you’ve determined your monthly income, you need to figure out your regular monthly expenses. Be sure to include items that are not due monthly, for example, if you need to pay property taxes once a year you should be setting aside money for that each month. Now you will be able to see how much money, if any, is left over each month that you could save for debt settlements. If you find that after paying your regular monthly expenses there is no money left at the end of the month, you may want to consider a Chapter 7 bankruptcy instead. Under no circumstances, however, should you take money out of your retirement accounts to use for debt settlements. Doing so typically involves costly penalties and can cause issues down the road if you don’t have enough money when you do retire. Further, your retirement accounts are protected from creditors so long as the money stays in those accounts no matter what.. 

Learn About the Costs to Settle Your Debts in New Mexico

There are costs involved in any debt settlement, whether you work with a New Mexico debt settlement company or try it on your own. This includes late fees and other fees or penalties due to late or missed payments , although if you are successful with a settlement offer then these costs can be included in the total debt that you settle. If you do decide to work with a New Mexico debt settlement company, they will charge fees for their services. These fees can be structured in a few different ways but are usually based on a percentage. This is the most expensive if it is a percentage of your total debt. A better arrangement is a percentage based on your total savings, which costs you less overall and acts as a great incentive for the debt settlement company to get the best deals for you. You should only be charged a portion of these fees as the company settles each debt. You would also be responsible for any bank fees associated with a third party bank account, which is most likely if you are contributing to an escrow account. 

Decide Whether to Work with a New Mexico Debt Settlement Company 

There is no requirement that you work with a New Mexico debt settlement company to pursue this type of debt management. If you are organized, detail-oriented, computer savvy and not afraid to negotiate you can approach your creditors on your own. The benefits to this include saving on fees and being able to remain in complete control of the process. Additionally, this opens up possible settlements with creditors who have a policy not to work with debt settlement companies. It does, however, require significant time and effort on your part, which can easily get overwhelming on top of everything else going on. The biggest challenge to going forward on your own, however, is not having “insider knowledge” about the process and the creditors. It can be very helpful to have someone experienced with this to let you know what percentages are typically accepted and how high you need to escalate a conversation to get to someone with decision-making authority. 

Research New Mexico Debt Settlement Companies

Working with an experienced New Mexico debt settlement company can be very helpful to the debt settlement process if you are working with a reputable organization. Unfortunately, there are also a lot of companies that are only out for a profit that can get you into an even worse financial position. Knowledge is power, though, and you can drastically increase the odds of finding a reputable company by conducting some research in advance and being aware of red flags to avoid. First, make sure that a company is providing you with all the information you need, including prices and terms, an approximate timeline for results, how much money saved they require to make each offer, and what negative consequences you will suffer if stopping payments to your creditors is part of their system. Next, make sure you are avoiding companies that offer guarantees (remember, no creditor has to accept a settlement) or are hyping a “new government program” as a cure-all. If a company charges fees before settling your debts, you should cross them off your list immediately. It can also be a problem if a company tells you to stop communicating with your creditors or stop making minimum payments right away. The basic rule of thumb applies here - if it sounds too good to be true, it probably is. You can further protect yourself by checking with the state of New Mexico’s office of the attorney general, which has a division for consumer protection and gathers information on current scams and fraud to avoid. Beyond your state, you can also check with the Better Business Bureau to see if any complaints have been filed against companies you are considering and see their overall ratings.

How to Make Your Debt Settlement Work 

You can also institute some best practices to help make your debt settlement work. If you are making a monthly payment to build up your debt settlement funds, make sure that it is due on a date that does not already have another large payment due. Usually, it makes sense to avoid the first of the month for this reason. Next, make sure you have a system in place for expected bills that do not come frequently, like annual car registration costs. You should be setting aside some of this cost every month so that you have the money available when it is time to pay. You should also make sure that you are setting aside some money each month as an emergency fund, to hopefully cover unexpected costs that can arise. Also, keep in mind that if you have multiple accounts with the same bank or credit company you may not be able to limit which accounts to settle. Even if you have a card with a smaller balance, the bank or credit card company may choose to close that account as well or lower your credit limit as part of the settlement. 

Alternatives to Debt Settlement 

You should always keep in mind that debt settlement is only one of many possible debt management or debt relief solutions. There is no one best option, what’s important is figuring out which option is best for you. Your best option will be the one that works in your current financial circumstances and helps you to achieve your financial goals. Below we will briefly explore some other possible solutions to explore and consider. 

New Mexico Debt Consolidation

One option to consider is debt consolidation. A New Mexico debt consolidation usually involves taking out new credit to pay off your existing unsecured creditors. This can be cost-saving if you can qualify for a debt consolidation loan at a lower interest rate and has the added benefit of streamlining your bills into one monthly payment. Whether you qualify for a personal loan at a lower-interest-rate is largely dependent on your credit score. Debt consolidation is often limited only to people who have good or excellent credit. It will not, however, do anything to address overspending or keep you from getting into more debt, if those are habits you want to address.

New Mexico Debt Management Plan

Another option to consider is a debt management plan. A New Mexico debt management plan (“DMP”) is a form of debt consolidation that is not dependent on your credit score. The DMP would be administered by a credit counseling agency. You work together with your credit counselor to create a reasonable monthly budget and payment plan for your debts. Your credit counselor negotiates with your creditors on your behalf to lower interest rates and reduce or eliminate late fees and/or penalties. You make one monthly payment to the credit counseling agency who then distributes the money out to each creditor according to the agreed amount. Once you complete your DMP (usually between two and five years) all of your debts will be paid in full. 

New Mexico Bankruptcy

If you discover when investigating the various debt relief options that you can’t afford to set aside any money to build up debt settlement or otherwise participate in a payment plan, you may find that bankruptcy is your best option. Bankruptcy is a legal remedy to help people who are in over their heads financially walk away from some (or all) of their unsecured debts. Most bankruptcy attorneys offer free consultations, which you may want to explore after completing your initial credit counseling session. If you decide that a New Mexico bankruptcy is best for you, be sure to check out Upsolve’s screening tool to see if you qualify for free assistance throughout the process. 



Written By:

Attorney Eva Bacevice

LinkedIn

Eva G. Bacevice graduated from the University of Michigan Law School in 2001. She practiced law for close to a decade in the area of consumer bankruptcy. She now works in higher education as an Academic Advisor for undergraduate students at the Stephen M. Ross School of Business,... read more about Attorney Eva Bacevice

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