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Some Montana residents may have attempted credit counseling, receiving advice on managing money and budgets, and had access to financial education, yet are still unable to eliminate their debt loads. For Montana consumers who have tried credit counseling but still need help, the next option to consider may be debt settlement.
Different From Credit Counseling
In consumer counseling programs, education and guidance are provided, typically by a nonprofit organization and may include education, budgeting and debt management. In debt settlement, there are no such upfront agreements with creditors; the focus is on reducing and paying off the total amount owed, which is typically delinquent.
According to the Montana Department of Justice, “Debt settlement is a way to decrease debt in which the debtor and the creditor agree upon a reduced balance that is considered payment in full.”
The Federal Trade Commission explains: "Debt settlement programs typically are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay a ‘settlement’ to resolve your debt. The settlement is another word for a lump sum that's less than the full amount you owe.”
Debt settlement companies in Montana must meet registration and performance insurance requirements and agree to comply with fairly rigorous rules such as providing a written disclosure to the debtor containing specific facts about the debt settlement process including notification of all fees before beginning, obligations of a debtor for potential tax liabilities, implications for credit history, and more.
Additionally, Montana has regulations for how debt settlement is should be handled. The state imposes a fee limit of 20 percent of the aggregate debt amount for debt settlement companies. Understand what is expected of debt settlement companies to understand your rights.
Avoiding Debt Settlement Scams
The most thorough advice on avoiding debt settlement scams comes from the Federal Trade Commission, which says you should avoid doing business with any company that promises to settle your debt if the company:
- Charges fees before it settles your debts
- Promotes a "new government program" to bail out personal credit card debt
- Guarantees it can make your unsecured debt go away or be paid off for pennies on the dollar
- Tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
- Tells you it can stop all debt collection calls and lawsuits
Where To Find Help
The Montana Department of Justice provides a list of registered debt settlement companies. These companies are properly registered and by doing so, agree to abide by Montana debt settlement laws. Currently, the list includes just five companies, none of which are physically located in Montana.
For additional help in researching companies, consumers in Montana may wish to check with the Better Business Bureau, the National Foundation for Credit Counseling, and the Association of Credit Counseling Professionals.
Consumers in Montana with continuing debt problems could benefit from the discipline, skills and credit knowledge offered by approved credit counselors.
How It Works
Credit counseling is designed to provide consumers with money management advice, budgeting help, financial educational courses, and, if necessary, personalized debt repayment plans. Through education and budgeting discipline, the consumer may succeed in paying down debts and easing the stress of monthly payments.
If more help is needed, a credit counseling agency may work with creditors to prepare a debt consolidation or management program designed to pay off debts at a lower total monthly cost through lower interest rates or extended loan terms. The consumer typically deposits money each month with the agency and the agency disburses payments according to arrangements made with creditors.
The debt does not disappear; the idea is to lower total monthly payments to help the consumer better manage their monthly budget. While most credit counselors are nonprofits, they may charge fees for their services and/or may receive support from creditor companies. Avoid large upfront fees and look elsewhere if promises of help seem too good to be true.
According to the Montana Department of Justice, companies offering debt management plans to Montana residents are required to be licensed by the Office of Consumer Protection. The state provides a listing of companies licensed to offer debt management services. Licensing is not an endorsement by the state but shows that a company has met legal requirements.
Where To Find Help
One of the nation’s oldest consumer advocacy agencies is the National Foundation for Credit Counseling. They list one local, plus several regional and national member agencies serving Montana.
The U.S. Department of Justice (DOJ) provides a list intended for consumers who are required to have counseling as part of a bankruptcy filing showing approved consumer credit counseling companies by state and a quick scan will show companies approved to do business in Montana.
You may also do a regional search with the Better Business Bureau (BBB) looking for Montana credit counseling businesses.
For additional tips on finding a good credit counseling company, read this Federal Trade Commission guide to choosing a credit counselor.