How to Settle Your Debts in South Dakota
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Below, you’ll learn more information designed to help you decide whether the debt settlement process may be a good fit for you. We’ll share details about the process itself and give a brief overview of other debt management options.
Written by Upsolve Team.
Updated February 24, 2020
If you're struggling to make ends meet, you're not alone. While you may have heard about various debt relief options, it can be tough to know which one is the right fit for you. In this article, we will talk about debt settlement as a potential option to help get your finances back on track. However, our primary concern is to help steer you toward the right organizations and resources to help you determine what debt management solutions will work best for your unique circumstances overall.
Debt settlement involves negotiating with a creditor to accept less than the total amount of debt you owe. You make a settlement offer to your creditor for some percentage of what you owe, usually in a lump sum upfront or a very short installment plan, and they write-off the outstanding balance. The reason a creditor might agree to accept less than the full amount due is because they know that once a debt becomes significantly delinquent (more than 90 days) they will statistically only see payments from one out of five delinquent accounts. As such, their focus now is about managing their losses instead of chasing after account holders who are ghosting their responsibilities.
Debt settlement works best as an option for someone who has mostly unsecured debt (like credit card debt), who is already behind on payments, and has access to funds to create lump sum payments or the ability to set money aside to build up to them. It's not a viable solution for someone who has no ability to set aside savings. In this scenario, an individual would likely be better off considering a Chapter 7 bankruptcy instead.
Creditors for payday loans, title loans, or online loans that originated outside of the country are not likely to enter into any settlement agreements. Creditors for student loans, particularly government funded federal student loans, are also unlikely to settle. Similarly, creditors of secured debt (auto loans, mortgage lenders, etc.) are more likely to repossess your property if you default than they are to settle your account.
If you want to explore debt settlement further, it's important to know there are risks involved. First, no creditor is obligated to agree to debt settlement. If you're otherwise current on your debts and you stop paying them in an effort to qualify for debt settlement, you’ll face consequences including late fees, penalties, and a hit to your credit score. Additionally, if you're successful with debt settlement, there can be tax consequences, as forgiven debt can be treated as taxable income by the IRS. Finally, while there are plenty of reputable South Dakota debt settlement companies, there are just as many predatory companies only out for profit, so it’s important to know how to find a reputable one to work with.
Learn More Through Free Nonprofit Credit Counseling
A great first step for exploring different debt management solutions is no-cost credit counseling. A free credit counseling session is provided by reputable nonprofit credit counseling agencies for anyone who is interested in learning about their debt management options. You can check in advance to make certain that the credit counseling agency you’re interested in working with is a member of the National Foundation for Credit Counseling (“NFCC”) so that you can rest assured they are held to rigorous accreditation standards. During this session, you will meet one-on-one with a certified credit counselor to talk about your personal finances and goals. The credit counselor will conduct an in-depth assessment of your income, expenses, and debts and recommend a personalized action plan to help you achieve both your short-term and long-term financial goals. While there's no accreditation process for South Carolina debt settlement companies, you can discuss the option of working with one with your credit counselor to see if they think you're a good candidate for a debt settlement program.
How to Settle Your Debts in South Dakota
Below, you’ll learn more information designed to help you decide whether the debt settlement process may be a good fit for you. We’ll share details about the process itself and give a brief overview of other debt management options.
- Collect the Details About Your Debts
- Collect Details About Your Ability to Settle Your Debts
- Learn About the Costs to Settle Your Debts in South Dakota
- Decide Whether to Work with a South Dakota Debt Settlement Company
- Research South Dakota Debt Settlement Companies
- How to Make Your Debt Settlement Work
- Alternatives to Debt Settlement
Collect the Details About Your Debts
The first step in determining whether debt settlement could potentially work for you involves collecting details about your debts. Usually, you can find the information that you need, including your current interest rate, your monthly payment amount and your debt amount, on your most billing recent statements. You'll want to categorize the different types of debt for your reference and your credit counselor’s reference. For example, you can categorize unsecured debt for credit card companies and signature loans, secured for any title items (like a car loan) as well as other obligations like student loans and medical bills. It's a good idea to include information about debts you can't or don't intend to settle as well so that you can present a complete financial picture to your credit counselor and any creditors you may want to negotiate with. This is also a good time to pull a copy of your free credit report. It's not unusual for credit card companies and banks to assign or sell delinquent accounts to collection agencies or other third-party debt collectors. You'll need to have the most current information on who is holding each debt before you can negotiate and settle your debts.
Collect Details About Your Ability to Settle Your Debts
Next, you will need to determine your ability to fund or build up lump sum payments to make reasonable settlement offers. You’ll need to carefully evaluate your monthly income and budget. Include any income that you receive regularly in this calculation, not overtime or any other irregular source of income that you can’t count on like clockwork. You can use your most recent paycheck stubs, so long as they don't include an unusual amount of overtime. Your budget needs to be based on the income that you can depend on to be workable.
Now start figuring out your budget. List all regular monthly expenses but also account for other regular expenses (like an annual car registration) that don't come up monthly. When you subtract your budget from your income, you'll be able to see how much money, if any, you have leftover at the end of the month. These are the funds that you can set aside to create your lump sum settlement offers. You should avoid any temptation to raid your retirement accounts to get money for your settlements. If you withdraw money before your retirement age there are large tax penalties and you risk not having enough money set aside for when you do retire. Additionally, retirement funds are protected from creditors in collection efforts as well as in bankruptcy.
Learn About the Costs to Settle Your Debts in South Dakota
In any debt settlement process, you'll incur costs, whether you handle debt negotiation on your own or you work with a South Dakota debt management company. These costs will include late fees on your accounts as well as any other fees and penalties resulting from nonpayment. If you choose to work with a South Dakota debt settlement company, you'll also have costs associated with their fees. Usually, these fees are set up as a percentage of your debt. At the most expensive end, it would be a percentage of your total debt. If available, however, it's better to pay a percentage on the money that the settlements save you, as this incentivizes the South Dakota debt settlement company to work hard to get you the best deals. You should only be charged for these fees after a debt is settled, and only a portion at a time. If a South Dakota debt settlement company tries to charge you before reaching any settlement agreements, you should immediately seek assistance elsewhere.
Decide Whether to Work with a South Dakota Debt Settlement Company
You don't need to hire a South Dakota debt settlement company to accomplish debt settlement. Anyone can settle debts directly with their creditors. If you're very organized, computer savvy, detail-oriented and not afraid to negotiate, then you can move forward on your own. By handling this process yourself, you'll save on having to pay any settlement fees and you'll be able to maintain complete control over the debt settlement process. You’ll also have the benefit of potential success with creditors who otherwise have a policy of not working with debt settlement companies. Just be aware that a DIY approach will require a good deal of time and effort on your part. It could easily become overwhelming when you’re trying to pursue debt settlement on top of your regular obligations. Additionally, you'll miss out on one of the best benefits of working with a South Dakota debt settlement company, which is insider knowledge.
Research South Dakota Debt Settlement Companies
If you choose to work with a debt settlement company, work with one that is reputable so you can avoid being taken advantage of. If a South Dakota debt settlement company guarantees they will get you settlements, that's a big red flag as no creditor has to agree to this process. If they are hyping a “new government program” that could be suspicious. If they tell you to stop communication with your creditors or stop making payments before you have agreed on any payment plan or strategy, that's another red flag. And if they try to get payments for their percentage before they have finalized any settlement, you should immediately look elsewhere.
It's important to know what information a South Dakota debt settlement must share with you. They must tell you both the price and their terms, offer a timing estimate for getting results, estimate what percentage of your debts you'll need to save before they make any offers, as well as share with you the negative consequences that will result from stopping payments if you are not already delinquent on your accounts. Negative consequences can include increased collection calls, possible lawsuits filed by creditors, and late fees and penalties that will add to your total debt.
Before committing to working with a particular company, consider checking with the South Dakota attorney general’s office, specifically in their Consumer Protection Department to see whether any complaints have been filed against the company you're considering and to see if there are any current scams to look out for. Additionally, you can check with the Better Business Bureau to see whether any complaints have been filed against a company you’re considering and check any South Dakota debt settlement company’s overall rating.
How to Make Your Debt Settlement Work
If your settlement plan involves making a monthly payment into an escrow account, make sure that it's not due at the same time of the month as any other large payment. Generally speaking, you're wise to avoid the first of the month. Next, double-check that you have built into your budget a plan to cover non-regular expenses that may only come up once or twice a year. Ideally, you should be setting aside money towards these anticipated expenses every month so that you have the funds on hand when the payment comes due. If you come into extra money like an income tax refund it's always fine to make extra payments but it’s good practice to replenish or build up your emergency fund first.
Alternatives to Debt Settlement
Debt settlement can be a great debt management strategy under certain circumstances, but it's not the only option and may not be the best one for you. Below, we will offer a brief overview of some alternative debt relief options that are also available, including debt consolidation, debt management plans and bankruptcy, that may be a better fit for your current financial situation.
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South Dakota Debt Consolidation
Debt consolidation involves securing a new line of credit to pay off existing debt and streamline down into a single account. You can save quite a bit of money overall if you qualify for a lower interest rate debt consolidation loan than your current (and likely higher) interest rates. The catch here is that a South Dakota debt consolidation is usually only available to people who have a good or excellent credit score.
South Dakota Debt Management Plan
A debt management plan is a form of debt consolidation that doesn't require you to have a favorable credit score. With a South Dakota debt management plan (“DMP”), you work with a credit counseling agency to create a proposed payment plan to pay off the full amount of your consolidated debts over a two to five-year period. The credit counseling agency can negotiate on your behalf with your creditors to lower interest rates and reduce and/or eliminate late fees and penalties to reduce your overall debt, which will be paid in full at the end of the plan.
South Dakota Bankruptcy
If you find that you don't have any money left at the end of the month after paying your regular expenses, you may be better suited to bankruptcy than any other debt relief option. In Chapter 7 bankruptcy, you can walk away from some, or all, of your unsecured debt. You're welcome to meet with a bankruptcy attorney, most of whom offer a free consultation, to discuss your circumstances at any point during your debt relief exploration process. If you do decide to file a South Dakota bankruptcy, you can check Upsolve’s free screening tool to see if you qualify for free assistance throughout your case.
