Debt settlement can reduce what you owe, but it does not work for every kind of debt. Knowing which debts qualify helps you decide whether settlement is the right tool, or whether you need a different plan for part of what you owe.
Debts That Can Usually Be Settled
Settlement works best for unsecured debt, meaning debt that is not tied to collateral such as a house or car. Common examples include:
- Credit cards, including store cards
- Medical bills
- Personal loans from banks, credit unions and online lenders
- Private student loans, in some cases, especially once they are in default
- Accounts in collections, including debts sold to collection agencies
- Old utility or phone bills
With unsecured debt, the creditor cannot take back property if you stop paying. That is why many creditors will accept a reduced lump sum or a short series of payments rather than risk collecting nothing.
Debts That Usually Cannot Be Settled This Way
- Mortgages and auto loans. These are secured by your home or vehicle, so the lender can foreclose or repossess instead of negotiating.
- Federal student loans. These have their own programs, such as income-driven repayment, deferment and loan rehabilitation, handled through the U.S. Department of Education.
- Child support and alimony. These are court-ordered obligations.
- Most tax debt. The IRS has its own options, such as payment plans and Offers in Compromise.
- Court fines and criminal restitution.
What If You Have a Mix?
Most people have more than one type of debt. A common approach is to keep paying secured debts like your mortgage and car loan so you keep those assets, and use settlement for credit cards and other unsecured balances. Freeing up money from unsecured debt can make your essential payments easier to keep up with.
Is There a Minimum Amount?
Many debt settlement programs work best when you have a meaningful amount of unsecured debt, often several thousand dollars or more. If your balances are smaller, a budget or debt consolidation may be a better fit.
Find Out What Qualifies in Your Situation
Not sure which of your debts are eligible? Alliance Settlement will review your accounts with you at no cost. Get your free debt evaluation.
