How To Settle Your Debts in New Mexico
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Once you decide to pursue debt settlement in New Mexico your next challenge is figuring out how to go about it. Below we will discuss the debt settlement process, step by step.
Written by Attorney Eva Bacevice.
Updated January 15, 2025
What Is Debt Settlement in New Mexico?
Figuring out how to deal with your debt payments can feel like a big undertaking. But learning about the different debt relief options out there may be easier than you think. There are several ways to get back on track financially — one of these options is called debt settlement.
Debt settlement allows you to resolve your debt by paying back less than what you owe. This typically involves negotiating with a creditor to accept an upfront lump sum payment or a short-term installment plan. You have the option to handle the negotiation process on your own or work with a reputable New Mexico debt settlement company that can guide you through the process.
Why Creditors Agree to Debt Settlement
It may seem surprising, but creditors often agree to settle for less than the full amount owed. Credit card companies and banks know that if a debt is more than 90 days past due, the chances of collecting the full balance are slim. Accepting a lump sum payment upfront gives them a better chance of recovering some of the money.
Is Debt Settlement Right for You?
Debt settlement is ideal for people with mostly unsecured debts, like credit card balances, who are already behind on payments. The best candidates have a manageable number of debts and the ability to save or access funds for lump sum payments.
However, it’s not a good fit for people with multiple types of debts, like payday loans or medical bills, or for those trying to maintain good credit. If you’re not already behind on payments, creditors likely won’t negotiate, and becoming delinquent can hurt your credit score.
Risks to Keep in Mind
Debt settlement comes with some risks. Forgiven debt over $600 is usually considered taxable income. If you choose to work with a debt settlement company, be cautious of scams or predatory practices. Taking the time to understand these risks can help you feel confident and informed as you decide whether debt settlement is the right path for you.
Learn More Through Free Nonprofit Credit Counseling
A great first step when exploring debt relief options is nonprofit credit counseling. During a free one-on-one session, a certified credit counselor will review your income, expenses, and debts while discussing your financial goals. They’ll recommend your best next steps, which may include a debt management plan, debt consolidation, or bankruptcy.
You’re under no obligation to follow their advice or continue working with the agency. To ensure you’re working with a reputable organization, look for one accredited by the National Foundation for Credit Counseling (NFCC), which holds agencies to high standards. While NFCC agencies don’t handle debt settlement, your counselor can explain the process and help you determine if it’s a good fit for you. Upsolve can connect you with an NFCC-accredited nonprofit credit counseling agency for a free consultation.
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How To Settle Your Debts in New Mexico
Once you decide to pursue debt settlement in New Mexico your next challenge is figuring out how to go about it. Below we will discuss the debt settlement process, step by step.
- Collect Details About Your Debts
- Collect Details About Your Ability to Settle Your Debts
- Learn About the Costs to Settle Your Debts in New Mexico
- Decide Whether to Work with a New Mexico Debt Settlement Company
- Research New Mexico Debt Settlement Companies
- How to Make Your Debt Settlement Work
- Alternatives to Debt Settlement
Collect Details About Your Debts
Your first task will be to collect information about all of your debts. You’ll want to pull together all of your most recent statements for credit cards and all other debts to get the necessary details. The information you’ll need to know includes your current interest rates, monthly payments, and outstanding balances. You should also include debts that you’re unlikely to settle, such as medical bills and student loans, to show your creditors your complete financial picture. Note that federal student loans, in particular, are not a debt you will be able to settle. It is also a good idea to get a free copy of your credit report. Often when debts are significantly behind, they are sold to a collection agency. Whenever you want to settle a debt, it’s important to be certain you’re contacting the correct debt collector. After you have collected all of the information about your debts, you can categorize them to determine which ones you might be able to settle. Generally, debt settlement is only an option for unsecured debts like credit cards.
Collect Details About Your Ability to Settle Your Debts
Next, you’ll need to collect details about your ability to settle your debts, which is an important consideration to determine if debt settlement is your best option. Remember, creditors have no obligation to agree to settle debts for less than the total amount owed. To get them to agree, you need to offer an incentive such as upfront lump sum payments. And to fund those lump sum payments you need to have access to funding for them, usually building the money up over time. So, your income and budget are big factors to consider. You should begin by figuring out your monthly income. If you are working, you can use your most recent pay stubs to figure this out, although if you have recently been doing a lot of overtime you should look back further to find a pay stub more representative of your regular workweek. If you get paid once a month, then it’s very easy to see what your monthly take-home income looks like. If you’re paid weekly or biweekly, you will need to calculate the monthly amount by multiplying the amount by the pay frequency (26 for biweekly or 52 for weekly) and dividing the total by the number of months (12.) If you’re not working, you should be looking at any income that comes into your home to pay living expenses but do note that social security income is protected from creditors. After you’ve determined your monthly income, you need to figure out your regular monthly expenses. Be sure to include items that are not due monthly, for example, if you need to pay property taxes once a year you should be setting aside money for that each month. Now you will be able to see how much money, if any, is left over each month that you could save for debt settlements. If you find that after paying your regular monthly expenses there is no money left at the end of the month, you may want to consider a Chapter 7 bankruptcy instead. Under no circumstances, however, should you take money out of your retirement accounts to use for debt settlements. Doing so typically involves costly penalties and can cause issues down the road if you don’t have enough money when you do retire. Further, your retirement accounts are protected from creditors so long as the money stays in those accounts no matter what..
Learn About the Costs to Settle Your Debts in New Mexico
There are costs involved in any debt settlement, whether you work with a New Mexico debt settlement company or try it on your own. This includes late fees and other fees or penalties due to late or missed payments , although if you are successful with a settlement offer then these costs can be included in the total debt that you settle. If you do decide to work with a New Mexico debt settlement company, they will charge fees for their services. These fees can be structured in a few different ways but are usually based on a percentage. This is the most expensive if it is a percentage of your total debt. A better arrangement is a percentage based on your total savings, which costs you less overall and acts as a great incentive for the debt settlement company to get the best deals for you. You should only be charged a portion of these fees as the company settles each debt. You would also be responsible for any bank fees associated with a third party bank account, which is most likely if you are contributing to an escrow account.
Decide Whether to Work with a New Mexico Debt Settlement Company
There is no requirement that you work with a New Mexico debt settlement company to pursue this type of debt management. If you are organized, detail-oriented, computer savvy and not afraid to negotiate you can approach your creditors on your own. The benefits to this include saving on fees and being able to remain in complete control of the process. Additionally, this opens up possible settlements with creditors who have a policy not to work with debt settlement companies. It does, however, require significant time and effort on your part, which can easily get overwhelming on top of everything else going on. The biggest challenge to going forward on your own, however, is not having “insider knowledge” about the process and the creditors. It can be very helpful to have someone experienced with this to let you know what percentages are typically accepted and how high you need to escalate a conversation to get to someone with decision-making authority.
Research New Mexico Debt Settlement Companies
Working with an experienced New Mexico debt settlement company can be very helpful to the debt settlement process if you are working with a reputable organization. Unfortunately, there are also a lot of companies that are only out for a profit that can get you into an even worse financial position. Knowledge is power, though, and you can drastically increase the odds of finding a reputable company by conducting some research in advance and being aware of red flags to avoid. First, make sure that a company is providing you with all the information you need, including prices and terms, an approximate timeline for results, how much money saved they require to make each offer, and what negative consequences you will suffer if stopping payments to your creditors is part of their system. Next, make sure you are avoiding companies that offer guarantees (remember, no creditor has to accept a settlement) or are hyping a “new government program” as a cure-all. If a company charges fees before settling your debts, you should cross them off your list immediately. It can also be a problem if a company tells you to stop communicating with your creditors or stop making minimum payments right away. The basic rule of thumb applies here - if it sounds too good to be true, it probably is. You can further protect yourself by checking with the state of New Mexico’s office of the attorney general, which has a division for consumer protection and gathers information on current scams and fraud to avoid. Beyond your state, you can also check with the Better Business Bureau to see if any complaints have been filed against companies you are considering and see their overall ratings.
How to Make Your Debt Settlement Work
You can also institute some best practices to help make your debt settlement work. If you are making a monthly payment to build up your debt settlement funds, make sure that it is due on a date that does not already have another large payment due. Usually, it makes sense to avoid the first of the month for this reason. Next, make sure you have a system in place for expected bills that do not come frequently, like annual car registration costs. You should be setting aside some of this cost every month so that you have the money available when it is time to pay. You should also make sure that you are setting aside some money each month as an emergency fund, to hopefully cover unexpected costs that can arise. Also, keep in mind that if you have multiple accounts with the same bank or credit company you may not be able to limit which accounts to settle. Even if you have a card with a smaller balance, the bank or credit card company may choose to close that account as well or lower your credit limit as part of the settlement.
Alternatives to Debt Settlement
You should always keep in mind that debt settlement is only one of many possible debt management or debt relief solutions. There is no one best option, what’s important is figuring out which option is best for you. Your best option will be the one that works in your current financial circumstances and helps you to achieve your financial goals. Below we will briefly explore some other possible solutions to explore and consider.
New Mexico Debt Consolidation
One option to consider is debt consolidation. A New Mexico debt consolidation usually involves taking out new credit to pay off your existing unsecured creditors. This can be cost-saving if you can qualify for a debt consolidation loan at a lower interest rate and has the added benefit of streamlining your bills into one monthly payment. Whether you qualify for a personal loan at a lower-interest-rate is largely dependent on your credit score. Debt consolidation is often limited only to people who have good or excellent credit. It will not, however, do anything to address overspending or keep you from getting into more debt, if those are habits you want to address.
New Mexico Debt Management Plan
Another option to consider is a debt management plan. A New Mexico debt management plan (DMP) is a form of debt consolidation that's not dependent on your credit score. DMPs are administered by a credit counseling agency.
You work together with your credit counselor to create a reasonable monthly budget and payment plan for your debts. Then your credit counselor negotiates with your creditors on your behalf to lower interest rates and reduce or eliminate late fees and/or penalties. You make one monthly payment to the credit counseling agency who then distributes the money out to each creditor according to the agreed amount. Once you complete your DMP (usually between two and five years) all of your debts will be paid in full.
New Mexico Bankruptcy
If you discover when investigating the various debt relief options that you can’t afford to set aside any money to build up debt settlement or otherwise participate in a payment plan, you may find that bankruptcy is your best option. Bankruptcy is a legal remedy to help people who are in over their heads financially walk away from some (or all) of their unsecured debts.
Most bankruptcy attorneys offer free consultations, which you may want to explore after completing your initial credit counseling session. If you decide that a New Mexico bankruptcy is best for you, be sure to check out Upsolve’s screening tool to see if you qualify for free assistance throughout the process.
