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How to Settle Your Debts in Washington

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In a Nutshell

This guide will educate you about the debt settlement process. After you read how the process works, you will learn about alternative debt-relief options that may or may not better serve your unique financial situation.

Written by Upsolve Team
Updated March 19, 2020

If your debt is becoming overwhelming or you’re simply hoping to resolve some of your outstanding debt burdens, it may be time to look into any money management and/or debt-relief options available to you at this time. One option that may be worthy of your consideration is debt settlement. In a Washington debt settlement, you make a lump-sum payment to a creditors in exchange for partial debt forgiveness. Once this process is complete, your debt is resolved and your account is closed. Essentially, either you or a debt settlement company negotiates a settlement agreement with your creditor until you can both agree on an arrangement to settle your debt for less than the total amount due. 

It’s important to understand that before you can negotiate debt settlement arrangements with your creditors, you must be several months’ behind on your payments and you must have access to funds that allow you to make a lump sum settlement offer to your creditors. These criteria don’t always go hand in hand, and debt settlement is therefore not the best option for everyone interested in taking control of their finances. If you’re thinking about intentionally falling behind on your payments to become eligible for debt settlement, know that while your accounts remain delinquent, your credit score will be negatively impacted. Additionally, fees and even your interest rate will continue to rise. Your creditor may even sell off your debt to a debt collector.

Creditors offer different types of settlement plans. Sometimes, you can negotiate short term agreements, paying the debt payments in two or three installments. Creditors won’t allow you to draw out the payment plan for long because they want to get their money quickly and not have to worry about you defaulting. Before considering any debt settlement program, make sure that you have debts that qualify for debt settlement. Federal student loans can never be put into a debt settlement plan and neither can secured debts. If most of your debts are the aforementioned types, you will need to look into alternative debt-relief options. 

Learn More Through Free Nonprofit Credit Counseling

Regardless of whether you think that debt settlement may be a good option for you, if you’re interested in taking control of your finances and resolving some or all of your debt, consider signing up for a free credit counseling session with an accredited, non-profit credit counseling agency. Credit counseling agencies dive into your personal finances and explore ways that you can get out of debt. During your free credit counseling session, a certified credit counselor will take a close look at your income, expenses, and debts. By the end of your session, your credit counselor will provide you with a personalized action plan that will address your financial challenges and place you on a path towards reaching your financial goals. Depending on your circumstances, the counselor may suggest pursuing debt counseling, debt settlement, a debt consolidation loan, debt management plan, or bankruptcy.

Keep in mind that for most people, a debt settlement plan isn't the best debt-relief option available. This is because many people who are already behind on their bills don’t have access to money to offer as settlements to their creditors. If you need to look into other debt relief options, don’t feel bad. You’re certainly not alone.

How to Settle Your Debts in Washington

This guide will educate you about the debt settlement process. After you read how the process works, you will learn about alternative debt-relief options that may or may not better serve your unique financial situation.

Collect the Details About Your Debts

For a debt settlement program to work effectively, you will need to know how much you can afford to offer your creditors and how much you owe them. You will need to make a list of your unsecured debts vs your secured debts, as debt settlement companies can only settle debts that are unsecured. 

Begin by gathering all of your bills so you know exactly what you owe. If you can’t find the newest bills for all your debts, you can pull a free credit report from all three credit bureaus. Getting a credit report from all three bureaus is ideal because each bureau may report or leave off different information. Further, if you have gotten any collection letters, be sure to save the collection notices, especially if you received any from a law firm. If you receive a letter from a lawyer, you can still try and settle the debt on your own but you should contact your debt  settlement company immediately to better ensure that you don’t get sued while you’re still trying to settle your debt. 

Further, if you fell behind on your bills due to a hardship, you will want to gather some evidence that proves what made you fall behind. For example, medical bills or a letter from your employer showing that you lost your job may serve as evidence that you fell behind on your bills through no fault of your own. 

Collect Details About Your Ability to Settle Your Debts

Now, it's time to evaluate your income and expenses. If you don’t have enough money right now to meet your living expenses, you probably don’t want to invest what little “extra” money you have available into debt settlement because you might need that money to cover an emergency or unexpected expense. With that said, if you can cut back on expenses and save up for a few months to be in a better position to offer debt settlement sums to your creditors, this option may be a good one for your situation. 

Don’t ever take money out of your retirement account to settle debts. The money taken out of the retirement account may be considered taxable income by the IRS and you may be penalized a hefty amount if you take out early. 

Learn About the Costs to Settle Your Debts in Washington

Do not agree to work with a debt settlement company without first researching their reputation and making sure you fully understand how you will be charged. The Federal Trade Commission (FTC) regulates the debt settlement world. They implemented a rule that prohibits debt settlement companies from charging fees until they settle your debt. Your Washington debt settlement company will more than likely, charge a fee based on the percentage of savings they negotiate for you. This means they will be more willing to negotiate a better settlement for you since the better the settlement, the more they are paid. Before you sign up with any Washington debt settlement company they must tell you both the percentage they will charge you and the estimated dollar amount that this percentage represents. This may be called a "contingency" fee. 

Decide Whether to Work With a Washington Debt Settlement Company

Debt settlements is a process you can complete without the help of a Washington debt settlement company. If you're organized, able to keep good notes and don’t mind getting on the phone, you might consider negotiating your own debt settlement. Negotiating your debt on your own can save you a lot of fees. It can also be advantageous for you because you will be able to settle with your creditors who normally won’t work with a debt settlement company.

However, a DIY approach does have some drawbacks. First, it takes a lot of time; you will want to make sure you will find time each day to put aside to call your creditors. Second, it can be stressful because creditors can be mean. If any of them threaten you with going after your wages, know that they can’t do so until they get a judgment and start a lawsuit. When you work with a debt settlement company, you transfer the stress of negotiating with harsh creditors to someone else so that you can focus on living your life. 

Research Washington Debt Settlement Companies

Before you sign up with any debt-relief company they must give you information about their program. They must tell you the price and terms and conditions of their services. They must also tell you how long that they believe it will take until they can make an offer for each settlement, how long it will take to get results and (if applicable) how much you must save to make an offer. Further, if any company tells you that you must stop making payments to your creditors, they must explain to you the risks of doing so. Don’t just settle for “just any” debt settlement company. Research the reputation of any company that you’re potentially interested in working with before contacting that company directly. One of the places to start your research is the Better Business Bureau. You can see how each company is rated and what past clients had to say about their services. Another place to find past complaints about a particular debt settlement company is the Washington Attorney General website. Failure to do your research upfront could lead to negative consequences down the road. If you don’t want to be taken advantage of, make sure to work with a company that is reputable. 

How to Make Your Debt Settlement Work

If you decide to hire a debt settlement company to help you negotiate with your creditors, you need to stick to a budget to make sure you don’t fall behind on any installment payments you may need to make to the debt settlement company you’ve decided to work with. Additionally, you’ll want to make sure your settlement due date doesn’t fall at the same time as when you have other large bills due like your mortgage or student loan payments. For debt settlement to be successful, your lump sum or very, very short installment plan repayments must be made on time. Otherwise, your arrangements could be terminated by your creditors. 

Alternatives to Debt Settlement

Most people who are financially strapped for cash don’t pursue debt settlement because they don’t have the financial ability to offer lump-sum settlement payments to creditors. Thankfully, other debt management options are available to help people who need to seek alternative ways to manage their finances. 

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Washington Debt Consolidation

The Washington debt consolidation process combines your unsecured debts into one account, which is then paid monthly. This restructuring process can be helpful for people who struggle to manage all of their monthly payments separately. Traditionally, debt consolidation involves securing a new line of credit to act as a balance transfer. Your debt consolidation loan may be a personal loan, or home equity line of credit. To be approved for a loan, you must have a high credit score. If you don’t have a high credit score, you can pursue debt consolidation via a debt management plan. 

Washington Debt Management Plan

A Washington debt management plan is a form of debt consolidation that does not involve taking out another loan to pay off your debts. Instead, a Washington debt management plan uses a credit counseling agency as a “go between” you and your creditors. The credit counseling agency you work with is the one who will negotiate your payments. Your credit counselor will try and lower your interest rate and take off any late fees and penalties to give you a more affordable payment. You will then make one monthly payment to the agency, which will distribute your debts to your creditors. This option is available to you, regardless of your credit score. 

Washington Bankruptcy

A Washington bankruptcy is a very effective option for those who simply can’t afford to pay back their debts. When you file for bankruptcy, your eligible unsecured debts are eliminated. This means you can start fresh. If any debt settlement company tells you not to file for bankruptcy because your credit will be ruined forever, know that this statement is false. Debt settlement companies are not lawyers and can’t give you legal advice. Your credit is only damaged temporarily when you file for bankruptcy, just as it is temporarily damaged by the debt settlement process. If you’re interested in learning more about filing for bankruptcy, contact Upsolve to see if you qualify for free assistance in filing your case without having to pay attorneys’ fees. 

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