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Debt Settlement

One way for Hawaii residents 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. “Debt settlement can also be known by other names such as debt arbitration or debt negotiation. It is a process through which your creditor accepts less than the full amount owed, yet considers the balance as paid. Settlement companies often advertise that they can save you 50 percent or more of what you owe, with repayment typically taking between two and four years,” says the National Foundation for Credit Counseling.

What Hawaiian Residents Need to Know

Although debt settlement agencies are not regulated in Hawaii, the state law Chapter 446, HRS prohibits “debt adjusting” by for- profit persons or organizations. All agencies providing for debt settlement services in Hawaii must have a nonprofit status. Several bills have been introduced in the legislature to regulate debt service providers, but none have passed. Many Hawaii residents use Consumer Credit Counseling Services of Hawaii, which is a United Way agency, for debt settlement services as well as credit counseling.

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 NFCC recommends asking a lot of questions before signing a contract, including if they recommend 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. Make sure that you get all fees in writing and sign a contract with the agency for all services. Ask about any cancellation clause for the contract. 

Credit Counseling

the state Legislature in Hawaii has attempted to pass several bills regulating the services of credit counselors and debt repair agencies, credit counseling agencies are currently not regulated in Hawaii. However, the Office of Consumer Protection is responsible for investigating fraud claims involving credit counseling.

How to start the counseling process

1. Contact a credit counseling agency.

The National Foundation for Credit Counseling maintains a list of member organizations in Hawaii that meet specific standards. The Family Self-Sufficiency (FSS) Program through the Department of Community Services also provides referrals to Hawaii residents participating in the program for credit counseling. “Credit counselors operate almost exclusively as nonprofit tax-exempt organizations, in part because many states, like Hawaii, prohibit 'debt adjustment' activities except where performed by nonprofit organizations,” according to a report prepared by the State Auditor. The report was created for the Governor and State Legislators in 2008 in support of proposed House Bill 184.

2. Ask about fees for credit counseling services.

 “Any set up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship, according to the foundation. Many reputable organizations, such as Consumer Credit Counseling Services of Hawaii, provide services for free if you are unable to pay. Many fee-based organizations will also provide your initial session free of charge.

3. Meet with your credit counselor.

When you meet with your credit counselor, he or she will need you to provide information about your financial situation. Your counselor may provide advice or recommend a financial management course. Another option is a debt management plan, which involves the agency negotiating with your lenders. You would then make a monthly payment to the agency, which pays your creditors directly.

4. Follow the counselor’s advice.

Making changes and acting on the advice of your credit counselor will help you make lasting changes in your financial situation. Be sure to keep documentation of all credit counseling services and paperwork in case you need the information in the future.