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With debt settlement, you stop paying your bills and instead deposit the money in a dedicated account. You can negotiate debt settlement on your own, or you can get the help of a debt settlement company or credit counseling agency. (In Rhode Island, these types of companies have to register with the state, and follow Rhode Island's version of the Uniform Debt Management Services Act.)
After you have stopped paying your bills, you can try to negotiate a lower lump sum payment to discharge the debt. This process often takes between two and five years to complete. At the end, though, you are ready to start over again financially.
Risks of Debt Settlement
There are risks associated with debt settlement. Since debt settlement involves not paying your bills so that your creditors are willing to settle, you need to be prepared for a significant drop to your credit score. Also, a debt that is listed as "settled" on your credit report has a negative impact.
Another consideration is that your creditors might sue. In Rhode Island, the statute of limitations on all credit contracts, from promissory notes to credit cards, is 10 years. If your debt is within that time frame, your creditors might decide to sue you rather than settle with you. Speaking with a knowledgeable Rhode Island attorney can help you understand this issue.
Debt settlement can be one way to shed your debts, and using one of the approved credit counselors in Rhode Island can help you organize your debts more effectively.
The aim of credit counseling is to help consumers get their financial lives back on track by paying down their credit obligations. Approved credit counselors can help consumers put together a financial plan, and help them take action to pay down debt and improve their credit scores.
However, it's important to be careful about the credit counseling agency you choose. Since the bankruptcy laws changed in 2005 to require credit counseling for individual debtors, the industry has exploded. While credit counseling can be useful for many consumers, not everyone offering these services is qualified to provide the best advice.
Rhode Island’s Uniform Debt Management Services Act
Rhode Island is one of a handful of the states that has passed the Uniform Debt Management Services Act (UDMSA). There are three main parts to this state law, and credit counseling in Rhode Island:
- Registration: Credit counseling service providers must register in Rhode Island in order to operate. This registration includes detailed information about the business, as well as information about the owners. An insurance policy against fraud is also required, along with a $50,000 bond. Every year, credit counselors must renew their registration.
- Service Agreement: All fees must be disclosed, along with the risks of entering into the agreement. This means consumers have a clear idea of what they might be getting into. Plus, in Rhode Island, consumers have three days to cancel the credit counseling agreement.
- Enforcement: Not only is all of this required by Rhode Island law, but there is an enforcement clause that provides recourse for consumers who have been taken advantage of by a credit counseling agency.
You can start with the list of approved credit counseling agencies in Rhode Island provided by the U.S. Justice Department.
For many Rhode Islanders, credit counseling can provide help getting back on track. Start with registered Rhode Island credit counseling agencies, and you could be on your way to debt freedom.