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How to Settle Your Debts in Vermont

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In a Nutshell

If you're interested in moving forward with debt settlement in Vermont, read on to better determine whether you're a good candidate for this debt relief option. This piece will give you a strong sense of all steps in the debt settlement process and of some common debt management alternatives also worthy of your consideration.

Written by Upsolve Team
Updated February 25, 2020

There are so many different debt relief options out there that it can be hard to determine which debt management options are legitimate and which are scams. Even more importantly, it can be difficult to figure out which debt management solution is right for your unique circumstances. Learning about various debt relief solutions can help you feel more confident in choosing the best path forward for you and your family. 

One option available to you is debt settlement. This process involves paying a percentage of your total balance to a creditor in exchange for partial debt forgiveness to (overall) satisfy the debt and close the account. Creditors know that once an account has become significantly delinquent (more than 90 days) they have very little chance of receiving payment on these accounts in-full. Since they are otherwise facing the possibility that they will have to write off the debt in its entirety, agreeing to accept a percentage of the balance due, with the added incentive of an upfront lump sum payment or very short installment plan, is attractive. Keep in mind, however, that no creditor is obligated to agree to a settlement plan, and it’s only an option with certain types of debt. 

Debt settlement works best with unsecured debts, like credit card debts. It's not a great solution for payday loans, auto loans, federal student loans, and overdue taxes. A good candidate for debt settlement is someone who has a manageable amount of debts, mostly or all unsecured, who is already behind on payments and can fund lump sum settlement offers or to save up for them. There are some risks to take into account before jumping into the debt settlement process. If you aren’t behind on your bills and stop making payments to try to clear the way for a settlement agreement, late or non-payments will be reported to the credit bureaus which can lower your credit score. There are also tax consequences to successful settlements, as the IRS may count the funds forgiven as taxable income. Additionally, while there are many reputable Vermont debt settlement companies that might serve as assets to your success with a debt settlement program, there are seemingly just as many predatory companies out there that could make your financial situation a whole lot worse. 

Learn More Through Free Nonprofit Credit Counseling

Perhaps the best first step you can take when determining how to best improve your financial situation involves a free credit counseling session. When working with a reputable nonprofit credit counseling agency, your initial session will not cost you a dime. If you verify that the agency is an accredited member of the National Foundation for Credit Counseling (“NFCC”),  you can rest assured that the organization is held to rigorous standards. Credit counseling allows you to meet one-on-one with a certified credit counselor to go over, in-depth, your expenses, incomes, debt, and financial goals. At the end of the session, your credit counselor will recommend a personalized action plan created with these goals (and your current income, expenses, debts, and general situation) in mind. While credit counseling agencies can’t directly assist with debt settlements, you can certainly ask whether your credit counselor believes you're a good candidate for this process. 

How to Settle Your Debts in Vermont

If you're interested in moving forward with debt settlement in Vermont, read on to better determine whether you're a good candidate for this debt relief option. This piece will give you a strong sense of all steps in the debt settlement process and of some common debt management alternatives also worthy of your consideration.

Collect the Details About Your Debts 

The first thing you’ll want to do is collect details about what you owe. You’re going to want to know your current interest rate, minimum or monthly payment, and the current balance for each account you’re interested in settling. You should be able to find this information on your most recent statements. It’s actually a good idea to gather this information for all of your debts, including those you don’t expect to settle so that you can present your creditors and credit counselor with a complete financial picture. 

You’ll also want to pull a free copy of your credit report. This is necessary because it’s very common for credit card companies and other creditors to assign or sell delinquent accounts to collection agencies or other debt collectors once accounts become past due. You will therefore need to approach the current holder of your debt to enter any binding settlement agreements. Once you have all the information you need, you can categorize your debts into unsecured debts (credit card debts, gas cards, signature loans) that are more likely to be open to settlement and other types of debt that are not well-suited to settlement (like student loans, secured debts, and overdue taxes.) This should help you see whether settling any of these debts you can bring you the debt relief you're seeking. 

Collect Details About Your Ability to Settle Your Debts

Next, and equally important, you’ll need to figure out your ability to settle your debts. This will come down to whether you have access to money to fund your lump sum offers or the ability to set aside money very quickly to fund lump sum offers in the next month or two. Most people don’t have access to significant liquid assets, so you’ll probably need to assess your monthly income and budget to see how much you can save and how quickly you can save for a settlement offer. Be sure to evaluate all income that you receive regularly, as you won’t want to overlook a possible source of income that could be used to fund your settlement goals. 

After you’ve determined your monthly income. you’ll need to move on to your budget. Include all the monthly payments you make. For variable costs (like groceries) aim for a good average. You should also account for expected costs that aren’t monthly (like oil changes) and set aside funds so that you can cover these bills when they come due. Then you can subtract your expenses from your income and see how much money, if any, is left over. That's the amount that you can reasonably set aside to fund your lump sum settlement offers. If there's no money left at the end of the month, debt settlement is probably not a feasible option, so you may want to consider a debt management plan or Chapter 7 bankruptcy instead. 

Learn About the Costs to Settle Your Debts in Vermont 

There will be costs associated with any debt settlement, whether or not you decide to hire a Vermont debt settlement company to help you with your negotiation process. This is because you’ll necessarily incur late fees for late or non-payment before you’ll be able to qualify for debt settlement. If you do choose to hire a Vermont debt settlement company, you'll also need to pay their fees for service as either a percentage of your total debt or your amount saved. When possible, it’s best to go with a Vermont debt settlement company that charges a percentage of your total savings, because this helps to incentivize the company to get you the best possible deals. You'll also have to pay bank fees associated with a third party bank account if the company requires you to deposit your monthly payments into an escrow account. A reputable Vermont debt settlement company will charge their fees as settlement agreements are reached. If the company tries to charge their fees upfront before reaching any agreements, that's a big red flag and you should avoid working with that debt relief company. 

Decide Whether to Work with a Vermont Debt Settlement Company

You don't have to hire a Vermont debt settlement company to pursue this path. Anyone can settle debts directly with their creditors. If you're organized, computer-savvy, detail orientated and not afraid of debt negotiation, you may benefit from moving forward on your own. The benefits here include avoiding fees charged by a debt settlement company, staying in complete control of the process, and having the chance to settle with creditors who have a policy of not working with debt settlement companies. Keep in mind, however, that this will require a good deal of time and effort on your part, which can easily get overwhelming on top of your regular obligations. The biggest downside, however, to not working with a Vermont debt settlement company, is that you miss out on insider knowledge. This includes knowing what each creditor might typically accept to better inform your settlement offers.

Research Vermont Debt Settlement Companies

It’s important to research Vermont debt settlement companies to make sure that you sign on with a reputable one. There's a good deal of information you can get from the Vermont debt settlement company itself. They are required to give you information regarding their prices and terms, an expected timeline for results, and estimated amounts for reasonable settlement offers. If their debt settlement program relies on you not making payments or becoming delinquent on your debts, they must fully inform you about possible negative consequences, including late fees, damage to your credit score, and possible lawsuits from creditors. 

You can also be on the lookout for red flags. If a Vermont debt settlement company guarantees success, that should make you immediately suspicious. Remember, no creditor has to agree to debt settlement. If the debt settlement company is pushing a “new government program” you should find out additional information as this is usually a sign of a scam. And finally, if they try to charge you in advance of any settlement agreements you should look elsewhere. 

You can check with the Vermont attorney general’s office in their consumer protection unit to see if complaints have been filed against a company you're considering. Another resource that maintains a database of complaints is the Better Business Bureau.

How to Make Your Debt Settlement Work

You can follow some best practices to better ensure that your debt settlement will work. If you're setting aside funds as part of a payment plan, make sure that the monthly payment is not due on the same date as any other large payment. It’s usually a good idea to avoid the first of the month. Also, make sure to think ahead when saving for debt settlement offers. Are you trying to save for a settlement offer during a time of year when you have other, significant, irregular expenses due? Don’t set yourself up for failure by forgetting to account for other expenses that might be coming in soon. 

Alternatives to Debt Settlement

Debt settlement can be a great debt management system under the right circumstances and with the right types of debts. There are also alternatives to pursue if you can’t reasonably fund debt settlement or you have debts that are not unsecured and/or unlikely to settle. 

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Vermont Debt Consolidation

Debt consolidation is a way to streamline your debts. With a Vermont debt consolidation loan, you take on a new line of credit to act as a balance transfer to pay off your existing debt. Since credit card companies and other creditors typically impose high-interest rates, you can save overall if you qualify for a lower interest rate on your personal loan. This is an option, however, that is dependent on your credit score. You’ll need good or excellent credit to qualify, which unfortunately makes this option a “no go” for many individuals struggling to manage their debt.

Vermont Debt Management Plan

Thankfully, there's a form of debt consolidation available that's not dependent on your credit score. With a Vermont debt management plan, you'll work with a credit counseling agency to create a payment plan tailored to your family’s needs. The agency can potentially negotiate with your creditors on your behalf to lower interest rates and reduce or eliminate fees. You’ll then make a single monthly payment to the agency, which will then distribute that payment to all of the creditors who have agreed to the terms of your plan.  

Vermont Bankruptcy

If you’re having trouble keeping up with your regular bills, let alone your debts, filing for bankruptcy may be the best option for you. You can explore this option at any point in your debt relief journey, as most bankruptcy attorneys offer free consultations and will advise you of your options any time. With a Vermont bankruptcy, you can walk away from some, or all, of your unsecured debts. If you decide to file for Chapter 7 bankruptcy and can’t afford an attorney, be sure to check out Upsolve’s screening tool to see if you qualify for free assistance.

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