When you're drowning in debt and dodging creditors, a debt settlement plan with one low monthly payment to a single creditor sounds like a dream solution. But some debts won't go into that settlement bucket.
Here are some of those debts and what you can do about them.
"Typically, utility companies and local taxing entities will work out a payment plan and will let you pay it off on a monthly basis," says Gail Cunningham of the National Foundation for Credit Counseling in Silver Spring, Md.
- Quick quiz: Get a free credit score estimate
Student loans: If you're trying to catch up on your college loans, the D-word is deferment, not debt settlement.
But rarely are student loans forgiven, according to Bankrate's Debt Adviser, Steve Bucci. So, Cecere says, eventually you'll have to pay.
"At some point, you can't defer anymore," she says.
The Internal Revenue Service: Your tax debts can't go into a settlement plan. If you owe taxes but can't pay the full amount, there are other ways to fulfill your government obligation.
"You can apply to pay them over time," Cecere says. "That's something you have to be in contact with them about. You will pay interest. But if you don't pay the IRS, they can garnish your wages."
You also may be able to settle with the IRS. "It's called an 'offer in compromise,'" Cecere says. "You meet with an IRS representative and say, 'There's no way I can pay all this. What can we work out?'"
Even if the IRS makes the deal, you'll have to pay taxes on the amount of debt that's forgiven, Cunningham says.
Child support and alimony: Child support and alimony are legal, court-ordered obligations even if your checking account is empty. In some states, such as Florida, the court can take your driver's license away for nonpayment, Cecere says. If you can't pay, there is an answer. "Go to court. Document that you can't pay," she says.
Secured debt: You likely wouldn't use debt settlement to make your car payment, mortgage or other secured debt, because those creditors don't need a settlement plan. They can simply take your car or home, Cecere says.if you have to choose between paying your Visa bill or making your house payment, you should make your house payment," Cecere says.
For all debt, the key is communication. "It's important to call and say, 'I can't make this payment. I'd like to work something out,'" Cecere says. "All they can say is no."
This article was reported by Karen Haywood Queen for Bankrate.com.
Published May 3, 2010