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How to Settle Your Debts in Rhode Island

The state of Rhode Island had a total debt of $9.29 billion US dollars in the fiscal year 2019. On the other hand, the local government debt was much lower at 2.68 billion US dollars. The state debt in Rhode Island is expected to be about 11.82 billion US dollars by the fiscal year 2025, and the local government debt will be about 3.41 billion US dollars.

If you live in Rhode Island and are currently burdened by high levels of unsecured debt, such as credit card accounts, private student loans, unpaid medical bills, and personal loans, debt settlement may be a viable option for you.

How does debt settlement work in Rhode Island?

Debt settlement allows consumers to settle their debts for a lower amount than the total balance, which can help them save money. Through this process, you or your debt settlement company negotiate with creditors to pay back a percentage of the debt. In a "settlement", the debtor pays an amount agreed upon by both parties, and the creditor forgives the debt. Ideally, this lower negotiated amount is paid off in one lump sum, but it can also be paid off over time.

Though creditors are under no legal obligation to accept debt settlement offers, negotiating and paying lower amounts to settle debts is far more common than many people realize.

Types of debts eligible for a debt settlement program

  • Credit cards
  • Department store cards
  • Signature loans
  • Payday loans
  • Personal lines of credit
  • Other unsecured debts
  • Private student loans
  • Pros and cons of debt settlement


  • You will save a lot of money.
  • You can avoid collection calls and filing for bankruptcy.
  • Late fees and penalties are waived.
  • You will pay off your unsecured debt in three years.
  • You can repay debts with an affordable single monthly payment.
  • Cons

  • Your credit score will suffer.
  • If you save more than $600, you must pay tax on your savings.
  • You are obligated to follow the terms of the settlement agreement.
  • How A Debt Settlement Program Can Help You In Rhode Island

    A reputable debt settlement firm will provide you with a realistic estimate and time frame for making offers to your creditors, eventually resulting in settlements that save you significant amounts of money, time, and aggravation.

    A debt settlement firm can help you pay less on the amount owed. Debt consolidation, bankruptcy, and credit counseling programs typically take longer. Remember, the goal is to save money and minimize damage to your credit score and profile. A legitimate debt settlement program may enable you to repay your debts in two to four years.

    A good lawyer will go over all of your options with you. The attorney can advise you on whether you should try to settle your debts or if you should do something else, such as file for bankruptcy.

    How To Settle Your Debt On Your Own In Rhode Island

    Establish Your Budget

    Before you can start negotiating with creditors, you must first determine how much you can afford to offer them.

    Establish a Settlement Fund

    Open a new bank account for your settlement fund and start regularly putting money into the account until you have enough to make a reasonable settlement offer.

    Mention Bankruptcy

    Even if you aren't seriously considering bankruptcy, you give your creditor an incentive to reach an agreement. This threat is most effective with unsecured lenders, who are most likely to lose everything if you file for bankruptcy.

    Make a Lowball Offer

    Begin negotiations with a low-ball settlement offer. Starting low increases your chances of a figure less than half of your original debt.

    Get Everything In Writing

    When you finally reach an agreement with a creditor, make sure to get everything in writing, including the amount you have agreed to pay, the amount they have agreed to forgive, the repayment terms (a lump sum or a payment plan), and how the settlement will be listed on your credit report.

    Pay The Agreed-upon Settlement Amount

    Pay the settlement amount once you've reached an agreement and reviewed a written offer, and you're no longer liable for the debt. Then proceed to the next unsecured debt.

    Tax Implications of Debt Settlement in Rhode Island

    You may owe money to the IRS if you settle a debt with a creditor for less than the full amount or if a creditor writes off a debt you owe. The IRS considers the forgiven debt to be income, and you may owe federal income taxes on it. This is how it works: Creditors frequently write off debts after a certain period of time, such as one, two, or three years after you default. The creditor discontinues collection efforts, declares the debt uncollectible, and reports it to the IRS as lost income to reduce its tax burden. The same holds true when negotiating a debt reduction. The creditor will notify the IRS of the amount you did not pay.

    At the end of the tax year, any financial institution that forgives or writes off $600 or more of a debt's principal (the amount not attributable to interest or fees) must send you and the IRS a Form 1099-C. Because these forms are for reporting income, the IRS will ensure that you report the amount on Form 1099-C as income when you file your tax return for the tax year in which your debt was settled or written off.

    If you qualify as insolvent on the day before your debt was forgiven, you do not have to pay taxes on the forgiven amount. Furthermore, if the total amount of debt forgiven is less than $600, you are not required to pay taxes on it.

    Rhode Island’s Statute Of Limitations

    Every state has a time limit, known as the statute of limitations, in which a creditor can file a lawsuit to collect a debt. This statute will differ depending on the type of debt. Rhode Island ranges from three to ten years, depending on the type of debt, and it is 10 years for mortgage, medical, and credit card debt. Car loan debt has a four-year statute of limitation.

    Knowing the statute of limitations on your debt is important because it determines whether a debt collector has the legal right to sue you. If you are sued, check the Rhode Island statute of limitations and do not agree to any payment arrangements, either verbally or in writing, until you know it has expired. Consult an attorney or appear in court and inform them if it has.

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