How to Settle Your Debts in Pennsylvania

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Written by Upsolve Team.  
Updated March 19, 2020

Summary

If you are convinced that debt settlement is right for you, follow the steps and information below to help you prepare for the process ahead. If you aren’t sure whether debt settlement is a good option for you, consider some of the debt management alternatives listed at the end of this guide.

If your credit score is low but you’re eager to start tackling your debt so that you can focus on other financial goals, you may be considering signing up with a Pennsylvania debt settlement company. Before you commit to the debt settlement process, it’s a good idea to do some research. This guide will explain what debt settlement is, how a settlement plan works, and help you determine whether it is the best option for your financial situation. It will also explain other debt-relief options that may be worthy of your consideration, such as debt management plans, bankruptcy, and debt consolidation loans. 

Debt settlement programs allow you to negotiate with your creditors to pay less than what is owed in exchange for partial debt relief. It is a common debt management option. If you do a quick online search, you will find many Pennsylvania debt settlement companies out there for you to work with. However, you don’t have to hire a debt settlement company to engage in this process. If you are organized and have time to put aside, you can enter into settlement agreements on your own. Before committing yourself to any debt settlement program, you may want to determine if other debt-relief options are better options for your situation. 

Before signing up for any debt-relief program, make sure that the program will cater to your specific needs. Debt-relief programs work differently for every person’s financial situation. Debt settlement programs should only be considered if you have money to negotiate lump-sum payments. If you’re struggling to make ends meet, this likely isn’t the best option for you. Similarly, if you’re current on all your accounts, you’ll probably be better served by a debt management plan, as you must be behind on your accounts to offer settlements. You can generally only begin a debt settlement plan once your accounts have been delinquent for at least three months. Creditors won’t accept settlement offers if you are current on your accounts because they will assume you can pay them. However, if you can “answer yes” to the following statements, speaking with a Pennsylvania debt settlement company may be a good idea: 

  • I am delinquent at least three months on my account. 

  • I have income available after I’ve paid my monthly expenses that I can use for settlement offers or I have property I can sell so that I have settlement income available

  • I can negotiate with my creditors within a short period of time. 

Only consider debt settlement if you have unsecured debts like credit card debt. Secured debts, like mortgage loans and car loans generally won't be able to be negotiated through a Pennsylvania debt settlement company.

Some signs that you are probably not a good candidate for debt settlement include:  

  • You can't make lump-sum offers. 

  • You don’t have income to put away to settle your debt over the span of a few months.

  • You don’t want to temporarily damage your credit. 

  • Most of your debt is secured debt (ie. Tax, mortgage, federal student loan, car loan)

Learn More Through Free Nonprofit Credit Counseling

Before signing up with a debt settlement company, consider scheduling a no-cost credit counseling session with an accredited, nonprofit credit counseling agency. During a free credit counseling session, a certified credit counselor will go through your finances, assets, debt, and income with a fine comb. They will then provide you with a personalized action plan designed to help you reach your unique financial goals. There are many credit counseling agencies operating in Pennsylvania. You should choose an agency that is a member of the National Foundation of Credit Counseling (NFCC)  because this organization’s member agencies are required to adhere to strict certification standards. 

How to Settle Your Debts in Pennsylvania

If you are convinced that debt settlement is right for you, follow the steps and information below to help you prepare for the process ahead. If you aren’t sure whether debt settlement is a good option for you, consider some of the debt management alternatives listed at the end of this guide.


Collect The Details About Your Debts 

To begin the debt settlement process, collect your most recent statements from each account. Gather information about debts you are not looking to settle (as well as the ones that you are looking to settle) so that you can give your credit counselor, creditors, and debt settlement company a full picture of your finances. If your bills are all over the place and you have been throwing everything out, pull a free credit report online from the credit bureaus to evaluate your debt-related information in one place. You may also benefit from pulling your credit report to see who “owns” your debts if any of them have been sold to collection agencies already.

Collect Details About Your Ability to Settle Your Debts

A Pennsylvania debt settlement company will negotiate different settlements with all of the unsecured creditors you hope to settle with. Usually, a debt settlement company will have you begin making payments to an escrow account in advance of your settlement offer negotiations. When you have enough money in your account, they will use that money to pay settlements to your creditors. Some creditors may allow you to make your payment in installments directly, but installment payments are usually not as good settlements as lump-sum payments for the purpose of minimizing risk, so most creditors don’t accept installment arrangements as part of settlement negotiations.

The only way a debt settlement program will work is if you have the funds available to settle your debts. If you don’t have assets immediately available and you’re not planning on selling property to fund your settlement offers, you will need to go through your monthly income and create a budget for yourself to see how much you can save over a few months’ time to offer to your creditors. To make your budget you will need to include all sources of income. Ensure that your sources of income are steady so that you know how much you can pay towards your settlements. Consider all of your regular expenses and set aside extra money for emergency funds. People often fail to put money aside and end up worse off than they were before they started. 

Learn About The Costs to Settle Your Debts In Pennsylvania 

If you decide to hire a Pennsylvania debt settlement company to help you negotiate your debts, then you will need to be aware of these costs: 

  • High fees paid for their service

  • Bank fees associated with a third party account (If a debt settlement company requires you to deposit your monthly payments into a third party account, you may be charged for using this account)

Before signing up with any company, it is vital that you inquire how the company plans to charge you. Debt settlement companies take their fees either by charging you a percentage based on the total debt or by charging you a percentage based on the total savings. Always sign up with a company that will provide you with the second option as it is cheaper and provides an incentive for debt settlement companies to get you a better settlement than they otherwise might. 

Decide Whether to Work with a Pennsylvania Debt Settlement Company

You don’t need to hire a  Pennsylvania debt settlement company to help you negotiate your debts. If you’d like to, you can negotiate with your creditors directly. One advantage of DIY debt negotiation is that if a debt collector is not willing to work with a third party, you will be able to work with them directly. Taking the initiative to settle the debt yourself can be a good way to stay in control of your finances and save on fees. However, settlement negotiation is time-consuming so you will need to be able to stay organized and keep good notes. Hiring a Pennsylvania debt settlement company may be a better option if you won’t be able to set aside any time to call your creditors due to your busy schedule. 

Research Pennsylvania Debt Settlement Companies

Make a list of different debt settlement companies that you may want to hire to help you settle your debt. You should also jot down a list of questions to ask your top Pennsylvania debt settlement company candidate before hiring them. Below are questions you should ask as you interview different companies: 

  • What are the price and terms of the services I will be getting?

  • How long it will take to get results? 

  • How will my credit be affected if I stop paying your creditors?

If you’re not already behind on your payments, a company will probably instruct you to stop making any monthly payments to your creditors so that your account becomes delinquent, as creditors won’t agree to settlements with account holders whose payments are current. It’s important to note that once your account is in default long enough, you will be charged late fees and penalties that are irreversible. While your account is not being paid your credit score will also take a hit. Not all banks will work with a Pennsylvania debt settlement company.  Ask your creditor whether they will work with a Pennsylvania debt settlement company before signing up. 

There are numerous scams out there. Look out for these signs before signing up with any debt settlement company: 

  • They promise you the world to get you to sign up without reviewing your specific situation. 

  • They are aggressive with you to have you sign up. 

  • They tell you that bankruptcy is not a good option for you and/or they tell you that bankruptcy will ruin your credit forever. 

You should check Pennsylvania’s attorney general website, to see if any complaints have been filed against the company you are considering hiring. Additionally, checking with the Better Business Bureau is a good place to see reviews from past clients. 

How to Make Your Debt Settlement Work

Once you have reviewed your budget and expenses and determined you have enough money to pay back your creditors, you will need to consider when you will be able to make the payments to your creditors. To ensure your Pennsylvania debt settlement works, make sure that your settlement payments are taken out of your bank account on a day you are able to make a payment. It is probably not a good idea to have your mortgage payment and debt settlement payment due on the same day. If you’re making a lump sum payment, take care to schedule that payment on a date when the funds will be readily available as well.  

Alternatives to Debt Settlement

Remember that debt settlement programs are not suitable for everyone and that’s okay. Even if you decide to begin with a debt settlement program, your circumstances may change and you may have to find another debt management option that works better for your circumstances. Below, you’ll learn about some of the most popular debt management options worthy of your consideration. 

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Pennsylvania Debt Consolidation

Pennsylvania debt consolidation is a form of refinancing. When you take out a debt  consolidation loan, you’re securing a new line of credit to pay off your other loans. This can help reduce your monthly payments and streamline your personal finances. You will need to have good credit in order for any lender to extend you a new line of credit with favorable terms. If you have a poor credit score you will need to look into other debt-relief options. 

Debt Management Plan 

In a Pennsylvania debt management plan, a credit counseling agency works with your creditors to (ideally) reduce your monthly payment and interest rate on your debt. In many cases, they will also reduce the interest and penalties. You and your credit counselor will work to formulate an affordable repayment plan. Once your plan is in place, you’ll submit one payment each month to your credit counseling agency. The agency will then pay your numerous creditors with the funds from that payment per the terms of your DMP. 

Pennsylvania Bankruptcy

If you have no money left over to pay your debts after you’ve met your basic expenses or your debts are simply unmanageable, filing for Chapter 7 bankruptcy can eliminate your debt quickly. Unsecured debt, like credit card debt, medical bills, and personal loans can be discharged in a Chapter 7 bankruptcy. Bankruptcy stops debt collectors and credit card companies from calling you. As soon as you file a Chapter 7 bankruptcy, all collection calls must stop immediately. It can also be a useful tool to stop your bank account from being levied and your wages from being garnished. Upsolve can provide you with all the tools you’ll need to file bankruptcy for free.

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