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Debt Settlement

Money woes are more common that you might think. In a 2012 survey, about one in five adults in the U.S. said they don't have a good idea of how much they spend on housing, food and entertainment, according to the National Foundation for Credit Counseling.

What's more, less than half of those surveyed said they had budgets or kept a close eye on their spending. Another one-third of Americans -- that's about 77 million people -- don't pay all of their bills on time.

When faced with increasing debt or other financial problems, the survey found 27 percent of Americans would turn to family and friends first for help. Another 13 percent said they would approach their lender or credit card company to see what solutions it could offer them.

That's also where a debt settlement would come in.

Companies Need To Meet These Requirements

Licensing

To provide debt settlement solutions in Pennsylvania, a company must be licensed through the state and needs to follow the state's guidelines for accreditation. That means the company or person has to be certified through an agency acceptable to Pennsylvania.

Once licensed, the person or company needs to file annual reports on the business they do in the state.

Bonded

Before getting a state license, the person or company also needs to maintain a bond that is greater than all the money it might hold as part of debt settlement agreements. Companies set up bonds through surety companies as a way of safeguarding investments or fund entrusted to them.

In other words, the bond would guarantee the money a consumer would pay to the debt settlement manager or credit counselor as part of a debt settlement. The bond is there so the consumer won't lose any money paid in to the company.

Allowed Fees

While a debt settlement company may deduct fees for its services from what a client pays in to it, those fees have to be stated before an agreement is signed by the consumer.

Pennsylvania mandates the explanations of the fees be in "plain English" and easily understandable.

Weigh the options

Before agreeing to hire a debt settlement or management company, Pennsylvania requires the company to analyze the consumer's financial situation and prepare a budget for the potential client. If debt settlement isn't the best option, the company is legally obligated to tell the consumer and not offer that service.

Debt settlement can be a way to place yourself on stronger financial footing and should be carefully considered as an option.

Credit Counseling

Credit counselors have to be certified to be credit counselors by an independent certifying agency approved of by the state. Each year, the companies need to file reports with Pennsylvania, too, showing their counselors are taking continuing education courses as well as detailing the company's business for the year.

Free Education And Analysis

Each credit counselor also has to provide a free consumer education program to each client. In addition, before the consumer signs an agreement to use the counselor's services, the counselor must work up free analysis of the person's financial situation -- including a budget. 

If that analysis shows the person won't benefit from debt management, the counselor is banned under state law from offering those services. In other words, if your finances are in such dire straits that a debt management program won't help, you won't be strung along by someone looking to make money off your misfortune. 

Pennsylvania law also dictates that any fees must be clearly explained to a consumer -- whether the consumer is the one paying the fee or the fee is charged against a debt management plan payments.

A credit counselor can help you get your financial house in order. If appropriate to your situation, the counselor can set up a debt-management plan, in which your debts might be reduced in exchange for a monthly payment to pay down the debt. 

Foreclosure Considerations

In Pennsylvania, credit counselors OK'd by the state's Department of Housing may be able to stop a foreclosure on your house from happening while you are getting help from them. In that case, the credit counselor can help you get emergency housing funds from the state under the  Homeowners' Emergency Assistance Program.

Credit counselors also are the first step toward filing for bankruptcy if that is the solution best for you. You have to prove that you attended credit counseling sometime in the six months before filing for bankruptcy.

What To Look For

When looking for a credit counselor, the state attorney general's office recommends asking if the counselor is paid on commission or not. You want to avoid the ones paid on commission -- they get a larger paycheck the more people they steer toward debt management programs and may not have your best interests in mind.

You also want to look for a credit counselor who can advise you in all the available options for your situation. If the counselor tells you only about one option like a debt-management plan, look for another credit counselor.