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Debt Settlement

While credit counseling is regulated in the state through the Office of Consumer Affairs and Business Regulations (OCABR), debt settlement firms are not currently regulated in the state. However, residents are under protection of FTC debt settlement regulations, which prohibits collecting fees before services are rendered and requires companies to provide a time estimate for debt settlement along with total costs. 

The Attorney General advises residents to use caution when selecting a debt settlement company. “Two other methods of dealing with debt problems are consolidating debt through a single loan, and filing for bankruptcy. There are serious consequences associated with both of these options, so consult with a trusted banker about debt consolidation or a competent bankruptcy attorney about bankruptcy before taking any action,” according to the Office of the Massachusetts Attorney General. Residents who have been treated unfairly are encouraged to complete a form online or call the Attorney General’s Office at 617-727-8400. 

Questions You Should Ask

While there are many agencies that offer debt settlement services in Massachusetts, it is important to find the right fit for you. The NFCC recommends asking a lot of questions before signing a contract, including if the agency 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.

Credit Counseling

By understanding the credit counseling process and state laws in Massachusetts and the regulations designed to protect consumers, you can find a reputable agency to help you get your finances on track.

Here Is How Credit Counseling Works

  1. Contact a credit counseling agency. In Massachusetts, all credit services organizations must be nonprofit, but some organizations abuse this rule or manage to get around the rule, so consumers must be cautious. A list of approved credit counselors can be obtained through the Office of Consumer Affairs and Business Regulations (OCABR) at 617-973-8787.
  2. Ask about fees for credit counseling services. “Many credit counselors charge hundreds of dollars up front, and then charge a monthly fee, which may be a percentage of each payment (10 percent, for example) or a flat fee ($25 per month, for example). This money is paid to the credit counselor and not passed on to creditors. Therefore, it does not reduce your debt. It is important to compare any claimed savings against these fees to see if the fees eat up part or all of the savings. For instance, if creditors reduce your interest rates by 5 percent, but a credit counselor charges 10 percent of each payment as its fee, then you may pay more in fees than you achieve in savings. Credit counselors typically do not communicate this comparison for you,” the Attorney General's office says. A setup fee or monthly fee should typically be $50 or less, with monthly fees in the $25 range, according to the National Foundation for Credit Counseling website.
  3. Meet with your credit counselor and 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 advice of your credit counselor and work to make lasting changes in your financial situation. Keep documentation of all credit counseling services and paperwork in case you need the information in the future.