How to Settle Your Debts in Ohio

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Written by the Upsolve Team.  
Updated February 19, 2020

Summary

Our goal is to make sure you have a clear idea of what debt relief options are available. This guide on debt settlement in Ohio will give you the tools you need to explore if debt settlement is right for you, and if so, the next steps to move forward. 

The average credit card debt of Ohioans is rising. If you need debt relief, you're not alone. You can get back on track financially. Debt settlement is a way to do that. 

Debt settlement is paying less than the total amount of debt owed. You and your creditor will agree on the settlement amount. Usually, the debt settlement agreement will require a lump sum payment. Once the settlement amount is paid in full you will no longer have an outstanding balance or a monthly payment. 

Unsecured debts are more likely to settle for less than the full amount owed. These types of debt are not backed by anything and include credit cards from banks, store credit cards, gas cards, third party collection accounts, signature loans, and balances owed after repossession.

You can handle the debt settlement process yourself. If you'd prefer help with debt negotiation, you can hire an Ohio debt settlement company. Debt settlement companies usually require a monthly payment to an escrow account. Once enough money is available, then lump sum settlement payments will be made. 

A reputable Ohio debt settlement company can be a great asset. We encourage you to research any debt settlement company you're considering. Read reviews and look them up on the Better Business Bureau. There are trustworthy companies that can help you get debt relief.

A good candidate for debt settlement:

  • Has the ability to come up with a lump sum of cash.

  • Has only a few creditors of unsecured debts.

  • Has already fallen behind on payments.

Creditors make settlement offers on debts that are unlikely to be paid in full. There's no incentive to settle for less than the full debt amount when monthly payments are being made regularly.

Debt settlement carries some risks. It can create additional income taxes because the IRS considers forgiven debt as taxable income. Your FICO credit score will be harmed by missed debt payments and settling for less than the total debt owed. You will need other debt management solutions for debts that can’t be settled. Finally, creditors can still take aggressive collection actions against you while you're trying to settle debts. 

Debt settlement is not a solution for everyone, but it is a solution that helps many Ohioans get the debt relief they need without going the bankruptcy route. 

Learn More Through Free Nonprofit Credit Counseling

A great place to start exploring your debt relief options is through credit counseling, which is certified by the National Foundation for Credit Counseling (NFCC). It's free. It takes less than an hour. Afterward, you will know your options.

Together with a trained financial counselor, you'll review your income, expenses, debts, and assets. You will receive free advice on debt consolidation through a management plan, bankruptcy, and debt settlement. If your first choice is to settle your debts with each creditor, you can ask for an overview of why debt settlement is or isn't feasible in your situation. Ultimately your financial counselor will make a recommendation on what solution is best for you. 

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How to Settle Your Debts in Ohio

Our goal is to make sure you have a clear idea of what debt relief options are available. This guide on debt settlement in Ohio will give you the tools you need to explore if debt settlement is right for you, and if so, the next steps to move forward.


Collect the Details About Your Debts

You need to understand the details of your debts before you can decide if debt settlement is a good idea. 

Gather the most recent statements from all your debts. You may not have recent statements for defaulted debts that have been sold or assigned. That's okay. Next, order a free credit report. Your credit report will list all of your debts and creditors. 

Make a list of your debts. Include the outstanding balance, monthly payment amount, and interest rate. Note whether you are making current payments or if the debt is in default. Categorize the type of debt, such as credit card, student loan, or car loan. 

Understand which of your debts are secured and unsecured. A secured debt is backed by property, which the creditor can take if you do not make your payments. The most common secured debts are car loans and home mortgages. Unsecured debt is not secured by collateral, including credit card debt, store and gas cards, and collection accounts. Generally, debt settlement is most effective for unsecured debts. 

If you have only a few unsecured debts, you are behind on your payments, and you can get access to a lump sum of money, then you are possibly a good candidate for successful debt settlement. 

Collect Details About Your Ability to Settle Your Debts

Analyzing your income and expenses is critical if you plan to fund a debt settlement program by making monthly payments. 

Calculate your monthly income. Employees can use a recent pay stub. Make sure the stub reflects typical workweeks. Don't use pay stubs inflated with unusual overtime pay. Also, consider how often you are paid. 

  • If you are paid twice a month, say on the 1st and 15th, then you can multiply your check by two to get your monthly income. 

  • If you are paid bi-weekly, then you must account for the two months that you receive three paychecks. Multiply the income on your pay stub by 26. Then divide that number by 12. This gives you an accurate reflection of your monthly income. 

Determine your monthly living expenses. Make a list of all fixed expenses. Include your rent, mortgage, car payment, and utility bills. Next list all of your annual expenses, such as insurance policies or Ohio BMV registration fees. Divide annual expenses by 12 to get your monthly expense amount. Finally, list your monthly variable costs. Include gas, groceries, daycare and children's activities, clothing, shoes, entertainment, recreation, personal care items, and salon services. 

Subtract your monthly expenses from your monthly income to see how much money you reasonably have to put toward a debt settlement program. 

If your living expenses exceed your income, then debt settlement may not be the right path for you. It could work if you're able to get a large sum of cash to cover settlement amounts. However, if you spend more than you earn, then you can’t make a payment to an Ohio debt settlement company each month to accumulate enough money for lump-sum settlements. 

Learn About the Costs to Settle Your Debts in Ohio

Ohio State law controls how much Ohio debt settlement companies can charge for services. An initial consultation or initial set up of a debt management plan can’t cost more than $75.00. Consultation fees can’t be more than $100.00 per year. Fees for administering a debt management plan can’t be more than  8.5% of the amount paid each month for distribution to the client's creditors or $30,000, whichever is greater. (See Ohio Revised Code §4710.02(B))

The cost to hire an Ohio debt settlement company can be steep if you're making a high monthly payment. For those fees, a debt settlement company will handle debt negotiation, settlement offers, and settlement agreements. Those services might be worth the cost to you. 

Debt settlement can be done on your own. There isn't anything an Ohio debt settlement company can do for you that you can’t do for yourself. You can put money away in an escrow account each month to fund a debt settlement program. Additionally, it's not uncommon for creditors to send settlement offers after you fall a few months behind on payments. You can accept their settlement offer or make a counter-offer for a lower amount. 

Debt settlement works and you have options to make it work for you. 

Decide Whether to Work with an Ohio Debt Settlement Company

It's a personal choice whether to hire an Ohio debt settlement company or to manage your debt settlement yourself. One choice is not necessarily better or more successful than the other. A debt settlement company may offer institutional knowledge, which gives it greater insight into what creditors look for when deciding whether to settle a debt. On the other hand, some creditors will not work with a debt settlement company but might be willing to discuss settlement directly with you. 

There are pros and cons to handling your own debt settlements. The greatest benefits are avoiding fees charged by a debt settlement company, staying in control of negotiations, and being informed throughout every step of the debt settlement process. Some of the drawbacks include the time and effort required to negotiate settlements with several creditors, the risk of operating off incorrect or outdated information, and a lack of insider knowledge. 

Research Ohio Debt Settlement Companies

Research is critical if you decide to hire an Ohio debt settlement company!

The fact is that some debt settlement companies are reputable and some are nothing more than scams. A reputable debt settlement company may be able to save you money and stress. A reputable company will follow state and federal laws. 

Do your homework before hiring any organization to help with your personal finances. Research the company's name in the cases and proceedings filed with the Federal Trade Commission (FTC), search the name with the Better Business Bureau, and run a Google search for independent reviews. You can even request a summary of the results of a debt settlement company's mandatory annual audit and auditor's option from the Ohio Attorney General. (See Ohio Revised Code §4710.02(D)(1)-(2)) And trust yourself. If a company doesn't seem legitimate, move on.

How to Make Your Debt Settlement Work

Your debt settlement program depends on your ability to make your monthly payments. Make sure you're able to make that payment. Set up a budget that accounts for large annual expenses, like car registration, so that you're able to pay the expense and your monthly debt settlement payment. 

Keep your emergency fund replenished. Ideally, you have three to six months of emergency funds on hand. So long as you have this covered, make extra payments toward your debt settlement when you can. 

Sometimes we need to use a credit card, like when renting a car. Beware that if you're using a credit card it could harm your debt settlement negotiations. A creditor can look at your recent credit report and see credit usage and payments. Whether you're paying off the balance every month or accumulating more debt, it could be viewed unfavorably by a creditor considering a settlement amount. Whenever possible use a debit card. Those transactions don’t get reported to the credit bureaus or affect your credit score. 

Debt settlement works. It's a powerful debt relief tool for certain people. Depending on specifics, alternatives to debt settlement can offer more effective tools of debt relief for others. 

Alternatives to Debt Settlement

There is not a single best way or right way to manage overwhelming debt. First, one right way is to face debt head-on. That's what you're doing here. Second, selecting the right debt relief option for you is personal and specific to your circumstances. 

Debt settlement may not be in your best interest. An alternative to debt settlement could have a greater chance of success. There are numerous debt relief options available to Ohioans who need to get back on track financially. We'll explore Ohio debt consolidation, debt management plans, and bankruptcy.

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Ohio Debt Consolidation

Debt consolidation involves taking out a new loan to pay off your debts. With the new loan, you are combining multiple debts into one monthly obligation. 

Ideally, the Ohio debt consolidation loan has a lower interest rate and more favorable terms than those of the separate debts. Plus, the monthly payment on the new debt consolidation loan is typically lower than the combined monthly payments of the separate debts. 

A debt consolidation loan is often available only to people with good credit scores or excellent credit history and who can get favorable loan terms.

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Ohio Debt Management Plan

A debt management plan is a type of debt consolidation, but doesn't involve a loan. It involves working with an agency to consolidate debt payments, seek lower interest rates, and help you pay off debt sooner. 

Only unsecured debts can be included in a debt management plan, including most credit card company debts and debt collector accounts. But, student loans generally can’t be included. Creditors of medical bills can agree, or not, to work with the agency. 

An Ohio debt management plan doesn't require a good credit score. Arrange free credit counseling to learn more about your debt consolidation options.

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Ohio Bankruptcy

It's okay to seek a free consultation with an Ohio bankruptcy lawyer in your area. It's especially helpful after you review bankruptcy alternatives with a financial credit counselor from a trustworthy nonprofit organization

While you pursue debt settlement, your creditors can still make collection calls, send or sell your debt to a collection agency, and sue you for non-payment of debt. With a lawsuit judgment, a creditor can garnish your wages. Chapter 7 bankruptcy puts a stop to all of this. 

Upsolve can help if bankruptcy is your best debt relief option and you can't afford an attorney.

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The Upsolve Team
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