Connecticut is home to 3,576,452 residents, 10.5 percent of which are in the poverty level of income. The average estimated income per median household is $70,331. The residents of this state have an average of $7,600 in credit card debt alone, which is much higher than the national average of $6,300. If you are a resident of Connecticut and are behind on your monthly payments, debt settlement may be a viable option to help restructure your current debt load.
What Is Debt Settlement?
Debt settlement is a legal option for those who can’t repay their defaulted loans. A company that specifically deals with the process of debt settlement will contact creditors to negotiate a payback amount that is less than the debitor owes. While this process may seem pretty easy at first, it’s important to understand exactly how it works and what it does to your credit rating.
How Does The Debt Settlement Process Work?
When you contact an agency to negotiate your debt they will start by helping you setup an escrow account. Instead of paying the creditor, each month you will take that money and put it in an escrow account. Once there is a sizeable amount in the escrow the agency will contact your creditors. They will offer a lump sum amount to pay off the debt. For example, if you owe $4000 in credit card debt, the agency will negotiate a payment of $2500. If the credit card company accepts this agreement they will forgive the difference, in this case, $1500. The debt settlement agency will contact you about releasing payment from the escrow account to pay the creditor for the negotiated deal.
How Does This Affect My Credit?
During the time your escrow fund is growing it’s important to realize that you’re not paying your creditors. This will lead them to continue reporting to the credit agencies your lack of payment. This can drastically reduce your credit score. Also, it’s vital to realize the companies which do settle your debt for less will report that to credit bureaus too. When you look at your credit report it will say that the debitor settled for less than what was owed. This could negatively affect your ability to get credit in the future as it shows you were not capable of repaying your debt before.
Who Qualifies For Debt Settlement?
Due to the effects this process has on your credit, it’s a good idea to only use debt settlement if you have no other way of repaying your debt in the future. Those who qualify for debt settlement are:
- Have An Income To Supply A Monthly Payment
- Should Be Going Through A Financial Hardship (job loss, divorce, unexpected medical bills)
For a debt settlement agency to negotiate on your behalf, they need to show the creditor that you are truly unable to pay the entire amount. If you are only a month or two behind on your bill the creditor is not likely to settle for less than they are owed. However, if you’re almost a year behind on your bills they will be more likely to settle. This is because they will get a portion of their money back and won’t have to pay for legal fees to collect their money.
What Types Of Debt Can I Settle?
There is a long list of debts you can settle for less than you owe. Some include credit cards, personal loans, installment loans, and store cards. It’s actually easier to state the loans which you cannot settle, which include student loans, bail bonds, auto loans, child support, back taxes, mortgage loans, and check cashing loans. If you are not sure if your debt can be settled, contact a debt settlement company to discuss your options.
Connecticut doesn’t have any laws specifically about the debt settlement practice for the consumer. Many of the state’s laws are regarding how debt collection companies may perform their business. Connecticut falls into the federal jurisdiction of the Fair Debt Collection Practices Act which protects the consumer from harassing debt collection practices.