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Connecticut is known for many things, including being home to prestigious Yale University. Yet many residents of Connecticut struggle with debt. One way to meet that struggle head-on is through debt settlement. Debt settlement is when a third party works with your creditors to reach an appropriate settlement amount that reduces the amount you pay and fulfills your financial obligation.
Here’s Settlement Works In Connecticut
The Connecticut Department of Banking regulates debt settlement and debt negotiation companies. The state defines debt negotiation as “for, or with, the expectation of a fee, commission or other valuable consideration, assisting a debtor in negotiating or attempting to negotiate on behalf of a debtor the terms of a debtor's obligations with one or more mortgagees or creditors of the debtor, including the negotiation of short sales of residential property or foreclosure rescue services.”
In 2009, the Act Concerning Consumer Credit Licensees went into effect, which imposed a number of restrictions and regulations to debt negotiation companies in Connecticut. All companies performing debt negotiation tasks regardless of the name they use to describe these tasks, must have a debt negotiation license. A notable exception to the licensing regulation is attorneys licensed by the Connecticut bar who offer debt settlement or negotiation to a client as part of other representation. Before meeting with a debt settlement agency, check the Department of Banking website to verify their license. If you feel that a company is violating the law, you can report the company to the Department of Banking.
Questions You Should Ask
While there are many agencies that offer debt settlement services in Connecticut, it is important to find the right fit for you. The National Federation for Credit Counseling recommends asking a lot of questions before signing a contract, including if the firm recommends that you stop paying your creditors, if it will be reported as “Paid by Settlement” on your credit report and what taxes on the forgiven debt you will be responsible for.
Agencies can charge a maximum fee of $50 for the initial visit, and the service fee must be no more than $8 per month for each creditor, totaling to $40 or less. “A debt negotiator of unsecured debt may collect total aggregate fees including the initial fee and service fees, not to exceed 10 percent of the amount by which the consumer’s debt is reduced as part of each settlement as agreed to in the debt negotiation service contract as each settlement is achieved,” according to the Department of Banking. Additionally, the maximum fee to pay a secured debt, such as a car or house, is $500.
In recognition of the potential harm of credit card debt, the Connecticut government has put services in place to help residents receive legitimate assistance in resolving their debt problems including credit counseling.
If you’re a Connecticut resident struggling with credit card debt or considering bankruptcy, consult the state government website for complete rules about how credit counselors can operate in the state. The government identifies credit counselors as “debt adjustors,” since many credit counselors administer debt management plans in addition to other services. The state licenses debt adjustors as long as they meet the following requirements:
- Provide clients with written agreements including services to be provided and fees
- Provide free individualized credit counseling and budgeting advice before entering into a written agreement
- Determine that clients have the financial ability to make the payments as agreed to
- Contact each creditor to find out if they’ll accept the payments established in the written agreement
- Make payments to those creditors within a reasonable amount of time
- Provide clients a written statement at least quarterly
Find a Connecticut credit counselor by reviewing the U.S. Department of Justice’s approved list of credit counselors.
Types of Services Offered
If you choose to work with a credit counselor, you can opt to receive free credit counseling and budget assistance or to enter a debt management plan (DMP). Free credit counseling can help you create a plan for getting out of debt on your own. A DMP requires you to pay the debt adjustor a monthly payment that is then used to pay your credit card bills, student loans and medical bills. The advantage of a DMP is that the debt adjustor can often negotiate with your creditors to lower your interest rate and to reduce or eliminate any over limit or late fees that have accumulated on your accounts. This will allow you to pay off your debts more quickly. Working with a licensed debt adjustor is the safest way to enter a DMP. You run the risk of having your money used for other purposes than debt repayment if you use a debt adjustor that isn't licensed.
Whether you choose to tackle your credit card debt on your own or with a credit counselor, it’s important that you continue to be disciplined about your money management after your debt has been repaid. Don’t start using your credit cards again and use the funds you’ve paid to credit card companies to build a robust savings account.