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How to Settle Your Debts in Virginia

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In a Nutshell

To make an informed decision about pursuing debt settlements, you’ll want to start by collecting all the details about both your debts and your ability to make payments. In this article, we will help you determine if you're a good candidate for debt settlement as well as explain what to expect at each step along the way. 

Written by Upsolve Team
Updated February 25, 2020

Debt settlement is a process wherein a creditor agrees to partially forgive your debt in exchange for a lump sum payment for the remainder of the balance that hasn’t been forgiven. This process works best for certain types of debts, primarily unsecured debts like credit card debt and deficiency balances stemming from repossession. It's not generally an option for secured debt, such as auto loans, and government debt, such as overdue taxes and federal student loans. As a result, it’s important to understand how your debts are categorized before you commit to this debt relief process. You’re likely a good candidate for debt settlement if you have mostly or all unsecured debts, are already behind on your debt payments, and have access to money for lump sum offers or the ability to save up for them by setting aside money for lump sum offers within a month or two’s time. 

With that said, there are risks to consider when determining whether debt settlement is a good option for you. If you're current on your debts now and stop paying in hopes of entering settlement agreements, you'll incur late fees and other potential penalties. This will also result in a negative impact on your credit score and entries on your credit report. Creditors are likely to continue collection calls and threaten or file lawsuits as a result of non-payment. There can also be tax consequences to successful settlements, as the IRS might include the amount of debt forgiven as taxable income. There is a lot to consider when determining which debt management path is best for you and your family at this time. 

Learn More Through Free Nonprofit Credit Counseling

A great first step to figuring out which debt management strategies are best suited to your situation is to attend a no-cost credit counseling session. You’ll want to find a reputable nonprofit credit counseling agency that is a member of the National Foundation of Credit Counseling (“NFCC”) because they are held to particularly rigorous standards. At your free credit counseling session, you will meet one-on-one with a certified credit counselor to talk about your personal finances in-depth. The credit counselor will review your income, expenses, and debts as well as your short-term and long-term financial goals. At the end of your session, they will recommend a personalized action plan that will allow you to make informed decisions about your next steps. While credit counseling agencies don’t help with debt settlements, you can ask your credit counselor if they think any of your debts can be settled and if pursuing this option is a good idea for you specifically. 

How to Settle Your Debts in Virginia

To make an informed decision about pursuing debt settlements, you’ll want to start by collecting all the details about both your debts and your ability to make payments. In this article, we will help you determine if you're a good candidate for debt settlement as well as explain what to expect at each step along the way.

Collect the Details About Your Debts 

Start by taking an in-depth look at all of your debts. You’ll need to collect the details for each one, including your current interest rate, your monthly payment, and your current balance. As you're collecting the details for each debt, you should also be categorizing your debts. Remember that debt settlement is an option primarily for unsecured debts, but it’s still useful to have the information on all of your debts to be able to show a complete financial picture to your credit counselor, who will use this information to construct your personalized action plan. Now is the time to get a free copy of your credit report. This is an important effort, because it’s very common that credit card companies and other creditors to assign or sell off delinquent accounts to collection agencies or some other third party debt collector. Before you can settle your debts, you’ll need to know who “owns” them.

Collect Details About Your Ability to Settle Your Debts

Next, you’ll need to figure out whether you currently have the ability to settle your debts. Do you have access to money that can fund your settlement offers? Or can you set aside money for a month or two to save up a decent-sized lump sum? Resist any impulse to raid retirement accounts for this money which is never a good idea.   

Most people seeking debt relief don’t have extra money available, so your income and budget will probably determine your ability to enter a debt settlement program. When evaluating your income, you’ll want to assess some of your most recent pay stubs. For your expenses, you can start with your regular monthly bills and then determine an average for variable costs (like groceries). Once you’ve determined all your figures for the budget, subtract your expenses from your take-home income to see how much, if any, remains after all of your regular monthly payments have been made. If there's no extra money remaining, you won’t realistically be able to save for debt settlements unless you sell some of your assets. As a result, you might want to think about entering into a debt management plan or filing for Chapter 7 bankruptcy instead. If there's extra money left over, you can figure out how long it’ll take you to save up for settlement offers. If you can’t save enough for an offer within a month or two, debt settlement probably isn’t the best option available to you at this time. 

Learn About the Costs to Settle Your Debts in Virginia

You will incur costs with any debt settlement process, regardless of whether or not you hire a Virginia debt settlement company to help you with your negotiations. This will include late fees and any other fees or penalties that will result from late or non-payments. If you do decide to hire a Virginia debt settlement company to help you, you’ll also have to account for their fees. Usually, the fees will be based on a percentage that can vary. At the most expensive end, this would be a percentage of the full amount of your debt. If possible, it’s best to find a Virginia debt settlement company that charges a percentage of the total amount that you ultimately save with your settlements. This creates a great incentive for your Virginia debt settlement company to get you the best possible deals with each creditor. If part of the debt settlement process involves setting up an escrow account for monthly payments, you’ll also be responsible for any fees related to that bank account. You should only be charged a portion of the total fees as each settlement agreement is reached. If a Virginia debt settlement company tries to get its fees upfront before reaching any agreements, you shouldn’t hire them. 

Decide Whether to Work with a Virginia Debt Settlement Company

You don’t have to hire a Virginia debt settlement company. Anyone can settle debts directly with their creditors. This might be a good option for you if you’re organized, detail-oriented, and unafraid to tackle your own debt negotiation process. There are benefits to pursuing debt settlement yourself beyond avoiding fees or maintaining control over the process. A DIY approach also means you don’t have to worry about disreputable companies exploiting your situation in ways that might get you into worse financial trouble. You’ll also have the opportunity to potentially settle with creditors who otherwise have a policy of not working with debt settlement companies. 

There are, however, also a lot of great benefits to working with a reputable Virginia debt settlement company if this is the way that you prefer to move forward. Most reputable debt settlement companies have established relationships with creditors, which means they can reasonably estimate both the amounts you’ll need for settlement offers and the time it will take to reach agreements. This insider information can be very valuable because it gives you a framework you wouldn’t otherwise have on your own. 

Research Virginia Debt Settlement Companies

You can minimize the risks of being taken advantage of by a predatory company by conducting some research before signing on with a specific Virginia debt settlement enterprise. A Virginia debt settlement company must provide you with specific information; if they don’t, look elsewhere. This information includes price and terms, an estimate for results (both monetary and timing) and negative consequences you’ll face by stopping payments in the meantime. The catch-22 to debt settlements is that if you’re current on payments, your creditors have no incentive to accept settlement offers. With that said, as soon as you stop making payments you’ll take a hit on your credit score, start incurring late fees and face more aggressive harassment from creditors. Unfortunately, this is an unavoidable part of the process, but a reputable debt relief company will help you understand what to expect. 

You should be immediately suspicious of any company that offers guarantees. No creditor has any obligation to settle, so there are no real guarantees to be had. If a company is pushing a “new government program” that may also be a red flag. If the company tells you to stop payments and cut off contact with your creditors before you actually set up a plan, this is also a red flag. And any company that charges its fees before you’ve reached any settlement agreements should be avoided. 

You can find out more information about Virginia debt settlement companies from trusted sources, like the Virginia attorney general’s office. They have information available related to consumer protection under citizen resources, where you can find protection laws, information on current scams and check for complaints. You can also check with the Better Business Bureau to see whether complaints have been filed against a company in the past. 

How to Make Your Debt Settlement Work

You can follow some best practices to help make your debt settlement work as soon as you decide to move forward. First, if part of your process involves making a monthly payment toward lump sum savings, be sure to set that up for a day of the month that works for you. Usually, this means avoiding the first of the month and any other dates when other large bills are already due. It’s always ok to make extra payments if you come into extra money like your income tax return. You won’t be penalized for an early payment and providing an early payment could help save you money on late fees and other penalties as your accounts remain in non-payment status. 

Alternatives to Debt Settlement

Debt settlement is one of several debt relief options that you can pursue. It may not, however, be the best option for you based on your current circumstances. There is no one right solution for debt management. It always comes down to what is best for you, as an individual, at this point in time. 

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Virginia Debt Consolidation

Debt consolidation is a great alternative to debt settlement. If you have excellent credit, you can secure a Virginia debt consolidation loan to act as a balance transfer. Once you pay your existing debts, you’ll just need to make your monthly payments on the debt consolidation loan. You can potentially save money with debt consolidation by paying off higher interest rate debts with a new loan at a lower interest rate. 

Virginia Debt Management Plan

Another form of debt consolidation is a debt management plan. A Virginia debt management plan (“DMP”) doesn't require a favorable credit score. In a Virginia DMP, you work with a credit counseling agency to create a reasonable payment plan. The credit counseling agency will negotiate with your creditors to (ideally) lower interest rates and reduce or eliminate late fees so that your debts can be paid in full over a two to five-year period. You’ll then make one monthly payment to the agency, which will then be distributed to your creditors. 

Virginia Bankruptcy

All of the above debt relief options require some form of payment, but if you’re coming up short, these solutions won’t work. Thankfully, there's another option available. Bankruptcy is a debt relief remedy that allows you to discharge some or all of your unsecured debts to help you get back on your feet financially. You can explore this option at any point to see if it works for you. If you want to file a Virginia bankruptcy and can’t afford a lawyer, be sure to check with Upsolve’s screening tool to see if you qualify for free assistance. 

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