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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. According to the South Carolina Department of Consumer Affairs, “Debt Settlement Companies attempt to negotiate with your creditors to reduce the amount of money you owe. As an example, if you owe $20,000 to one creditor, the company will try to convince the creditor to accept a smaller amount, say $14,000, as full payment of the debt. While the debt settler is attempting to negotiate with creditors, the company will ask you to set aside a specific amount of money per month. They may have you deposit this money in your personal bank account or have you send it to the company for them to keep in a trust account. If a settlement is reached, the money saved will be used to pay the debt.”
How Settlement Works
All debt settlement agencies in South Carolina are regulated by the Consumer Credit Counseling Act. According to the Department of Consumer Affairs, the act oversees agencies that receive money from a consumer to distribute it among the consumer’s creditors, improve or offer to improve a consumer's credit record, history or rating or negotiate to defer or reduce a consumer’s obligations with respect to credit extended by others.
All debt settlement firms must register with the South Carolina Department of Consumer Affairs, which maintains a list of currently approved organizations. If the agency does not follow South Carolina Law or engages in unethical business practices, you can file a complaint with Consumer Affairs. The act also states that a written contract must be provided to all consumers with the option to void the contract with 10 days’ notice.
Questions You Should Ask
While there are many agencies that offer debt settlement services in South Carolina, it is important to find the right fit for you. The National Foundation for Credit Counseling 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.
So, for many, turning to a credit counselor can be a big help when debt becomes too much. “Debt Management Companies are what most people consider credit counseling organizations," according to the South Carolina Department of Consumer Affairs. "These businesses contact your creditors to stop any late penalties, decrease your interest rates, etc. The creditors that agree to these terms are now on your ‘Debt Management Plan’ Every month, you send one check to the Debt Management Company to cover any fees charged by the Company and payments for your creditors.”
All credit counseling agencies operating in South Carolina are required to follow the rules and regulations provided by the Consumer Credit Counseling Act. Certain groups and professionals are exempt from the state law, including faith-based organizations, CPAs and mortgage brokers. By understanding the credit counseling process and state laws in South Carolina and the regulations designed to protect consumers, you can find a reputable agency to help you get your finances on track.
What to Do
- Contact a credit counseling agency. In South Carolina, all credit organizations are required to be licensed by the South Carolina Department of Consumer Affairs. Review the list of currently approved organizations to find the best fit for your situation. If the agency does not follow South Carolina Law or engages in unethical business policy, you can file a complaint with the Department of Consumer Affairs.
- Ask about fees for credit counseling services. South Carolina requires that credit counselors provide a written contract of all services and fees. Consumers can cancel at any time with 10 days’ notice. A set-up 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.
- Meet with your credit counselor and provide information about your financial situation. The Credit Counseling Act requires that your counselor provide you with “an individualized counseling and education session that at a minimum addresses the following topics: managing household finances, managing credit and debt, budgeting, and personal savings strategies.” 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.
- 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.