Debt Relief Options in North Carolina

Debt Relief Programs in North Carolina

If you need debt relief in North Carolina, banks, credit unions, credit counseling agencies (nonprofit and for-profit), and online lenders can help consumers pay off credit card debt.

Each one offers very different approaches to solve your problem so shop around before making a final decision.

The five debt-relief programs offered in North Carolina include debt management programs, debt settlement, debt consolidation loans, nonprofit debt settlement and bankruptcy. Each program has pluses and minuses to consider.

Here is an outline for each program and why it might work for you:

Debt Management

Debt management programs have counselors from nonprofit credit counseling agencies work with lenders to reduce the interest rate on credit card debt. As of March 2022, the average interest rate on credit cards is 16.7%, but if you miss a payment, the rate can jump to 20%-25%. Miss two payments and the rate can go to 25%-30%.

Debt management agencies try to get that interest rate down to 8%, sometimes lower.

So, if you owe $5,000 on credit cards, you can reduce the monthly interest payment by $72 a month, if you were paying 25% and got your rate reduced to 8%. That $72 can be used to pay off your debt faster. Counselors at nonprofit credit counseling agencies factor your income and expenses and calculate an affordable monthly payment to eliminate your credit card debt.

Your credit score is not a factor for enrolling. You can be debt-free in 3-5 years if you make on-time monthly payments, and you may even pay the debt off early. If you don’t like the program, you can quit at any time. However, that means the credit card company will cancel the interest rate concession and you’re back to paying 20%-30%.

» Where to find it? – Debt management plans are offered by nonprofit credit counseling agencies, who work with creditors to reduce interest rates and monthly payments to a manageable level. The program covers unsecured debts, like credit cards, but not secured debts, like houses or cars.

» Is this right for you? – Debt management lowers interest rates and chips away at the amount owed until, in 3-5 years, you are free from the debt. Anyone in North Carolina with high-interest credit card debt would be helped by this program.

Debt Consolidation Loans

A debt consolidation loan is one big loan North Carolinians use to pay off debt on multiple credit cards. So, instead of 3-4 credit card payments every month, you make one monthly loan payment to the bank/credit union. The interest rate should be considerably lower, but that depends on your credit score and whether you are willing to put up collateral, like your home or car, to back the loan.

Typically, people put up collateral and pay around 10%-12% for a debt consolidation loan, compared to the 25% they likely are paying to credit card companies. This is a single payment to a single entity, at a lower interest rate. It simplifies payments and saves you money, which makes this look like a really good deal. And it can be.

However, you are taking on one big loan to pay off several small ones. You still owe the same amount. If you don’t stop using your credit cards, you must pay the debt consolidation loan and whatever you’re buying on credit cards.

And you must qualify in the first place. A poor credit score might disqualify you from consideration for a debt consolidation loan.

» Where to find it? – Most banks, credit unions and online lenders offer debt consolidation loans. It’s worth your time to shop around for the lowest interest rate and repayment terms.

» Is this right for you? – It’s a good choice for anyone with a good credit score (670 or higher) and the discipline to stop using credit cards. Generally, consolidation loans in North Carolina offer a lower interest rate than the high-interest rates charged by credit card companies.

Debt Settlement

Debt settlement is a chance for consumers to pay less than what they owe to settle the debt. The payment usually is made in a lump-sum after saving an agreed upon amount for 2-3 years and negotiating with one or more creditors to get them to agree to this. As good as this sounds for North Carolinians, it can be a long process, and it damages your credit report for seven years. Also, the IRS considers forgiven debt of more than $600 as income that must be declared on your tax return.

It works like this: You, or a company you hire, must negotiate a payment amount with creditors. You stop sending even minimum payments to the card companies, which means accumulating late fee penalties and interest added to what is owed. Instead, you pay into an escrow account. When that account gets big enough, the company doing the negotiating attempts to reach an agreement with the creditors.

Be aware: Card companies do not like this form of debt relief and some refuse to deal with debt settlement companies.

While debt settlement companies like to brag that they can cut your credit card debt in half, that doesn’t account for their fees and late payment penalties and interest on their accounts.

» Where to find it? – For-profit debt settlement companies specialize in this service. They negotiate on your behalf with the credit card companies, who must agree to the plan before it goes forward. The process usually takes 2-3 years and card companies are under no obligation to accept settlement offers.

» Is this right for you? – Anyone in North Carolina who can’t keep up with the interest and balance on credit card debt and is desperate for a solution. This is a last-ditch step before bankruptcy. If you have $50,000 in credit card debt – two million American consumers do – getting it knocked down to $25,000 sounds pretty good, but remember: If it sounds too good to be true … it probably is.

Nonprofit Debt Settlement

Nonprofit debt settlement was created in 2021 by nonprofit credit counseling agencies and the lure is the same – pay less than what you owe to settle a debt.

North Carolina consumers will pay only 50%-60% of what they owe and that is agreed upon at the start. Instead of long negotiations, the lenders agree to the terms upfront. Rules that must be followed include the consumer hasn’t made a payment in 180 days and agrees to make fixed payments for 36 months. Payments must be made on-time or the program is canceled.

There is no extending the repayment period beyond 36 months. The benefit to the consumer is that there is 0% interest charged during that time.

» Where to find it? – The program so new that only a few nonprofit credit counseling agencies offer it and only a few credit card companies and banks participate. Federal law requires the agencies to act in the client’s best interest. Search online for “nonprofit debt settlement” to find an agency that will provide this program.

» Is this right for you? – This is for North Carolinians who face overwhelming credit card bills they know they can’t pay. You won’t have to pay any interest on the debt, as long as you keep up with the 36 payments it takes to get through the program.

Bankruptcy

Bankruptcy scares most people, but for some North Carolinians, it might be the best debt-relief solution available. You get a second chance to get your finances in order and it can be done without losing many of your possessions, including your home.

There are two major types of bankruptcy, Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, non-exempt assets are sold by a trustee appointed by the court and the money is used to pay off debts. Most of your key assets are exempt, notably your home, car, personal items needed for work, pensions and Social Security.

In Chapter 13 bankruptcy, you keep your assets in exchange for making regular payments to the trustee to pay down debt.

The consequences for bankruptcy are significant. It stays on your credit report for 7-10 years, making it more difficult to get a home or car loan. Also, your credit score may drop 100-200 points, which hurts all aspects of your credit.

» Where to find it? – Though you could attempt filing bankruptcy by yourself, it is best to find attorneys in North Carolina who specialize in it. An attorney will know the ins and outs of the system and can protect you, your family and your assets as much as possible in the process.

» Is this right for you? – If you can’t pay off all your debts in five years, bankruptcy is a great option. It’s the fresh start many people need to get over some poor financial choices. It’s always best to try nonprofit credit counseling, debt management, debt settlement or debt consolidation before bankruptcy, but if those are not for you, bankruptcy is the final resort.

Statute of Limitations in North Carolina

In North Carolina, the statute of limitations for debt is three years from the last activity on your account. That is how much time a debt collector has to file a lawsuit to recover the debt through the court system,. It’s one of the shortest such limits in the country. However, making a payment on your debt, resets the statute of limitations, so debt collectors suggesting you make a small payment can trick you into resetting the clock to zero.

Debt Collection Laws in North Carolina

Although creditors can collect a debt after the statute of limitations has expired, those who have bought the debt from the original creditor cannot under North Carolina law. So, debt buyers cannot pursue such debts after three years. Debt buyers, however, are not the same as debt collectors who have been hired by the original creditor. Also, if a lawsuit has been filed against you after three years, the court may not be aware the statute of limitations has expired in your case, so you need to respond to the lawsuit, or the court may rule against you.

More Debt Statistics in North Carolina

Despite having low in median income, on average, North Carolina does well in debt statistics, with low bankruptcy rates and middle to low debt rankings.

• Mortgage debt: North Carolina ranked 30th highest nationally with an average mortgage debt of $165,636 in 2021.
• Auto loan debt: North Carolina’s average consumer auto loan balance was $20,121 in 2021, which ranked 23^th nationally.
• Bankruptcies: North Carolina has the seventh lowest rate of bankruptcies per 1,000 residents (0.68) in 2020.
• Median income: North Carolina is 39th in median household income ($61,922).
• Unemployment rate: North Carolina had the nation’s 25^th lowest unemployment rate (3.9%) in December 2021.