Debt Relief Options in Wisconsin

Debt Relief Programs in Wisconsin

Wisconsin residents struggling to pay off debt can find assistance programs at banks, credit unions, online lenders, and for profit and nonprofit debt relief companies. These programs include debt management, debt consolidation loans, debt settlement, and bankruptcy.

Here is an overview of each program:

Debt Management Program

In debt management programs, consumers pay off credit card debt without having to take out a loan. Nonprofit credit counseling agencies work with lenders to reduce interest rates to around 8% (sometimes lower) and lower monthly payments to an affordable level for your budget. The debt is paid off in 3-5 years.

Counselors at nonprofit agencies are trained and certified by the National Foundation of Credit Counseling, which is renewed every two years.

Where to find debt management programs: Debt management is offered by nonprofit credit counseling agencies. Enrollment is done over the phone with a credit counselor, or online. Counselors will conduct a 30-minute review of your income and expenses, then do a “soft pull” of your credit report, which does not affect your score. The counselors help you create an affordable budget that would include a payment toward eliminating your credit card debt.

Who is right for debt management programs: Consumers who have high interest credit card debts that they are unable to pay off at the end of the month, are ideal for debt management programs. Consumers should note that if a payment is missed, it will void the concessions on interest rates made by lenders.

Debt Consolidation Loan

Debt consolidation loans allow consumers to pay multiple, high interest credit card debts with a single, low-interest loan from a bank, credit union or online lender.

Having a good credit score is vital for receiving favorable interest rates with this program. A score above 700 is ideal, but you can still get fair rates with a score of 670-699. If you have a score under 670, the rates will most likely be too high to be any advantage.

Where to find debt consolidation loans: Banks, credit unions, and online lenders offer this type of debt relief. You should compare lenders in order to find the best rates.

Who is right for debt consolidation loans: Those who have credit scores that are above 670 and are able to stop using their credit cards, are good candidates for debt consolidation loans.

Debt Settlement

Debt settlement allows consumers – or, more likely, debt settlement companies — to negotiate with their creditors to pay less than what was originally owed. Although debt settlement can seem enticing with promises of large reductions to your debt, the claims are seldom true and can hurt your situation.

Debt settlement companies advise consumers to stop credit card payments, which leads to late fees and increased interest payments, making it more difficult to pay off the balance. Debt settlement has a negative impact on credit score, dropping it over 100 points in some cases.

Where to find debt settlement: You should seek companies that specialize in debt settlement. These companies are able to negotiate on your behalf with creditors to agree on a reduced sum.

Who is right for debt settlement: You should consider debt settlement if you are no longer able to make regular payments toward your credit card debt and feel that your only other option is bankruptcy. You should also note that there are many negatives associated with debt settlement and creditors have no obligation to agree to reduce your debt.

Nonprofit Debt Settlement

The difference between for profit and nonprofit debt settlement is that in nonprofit debt settlement, creditors agree in advance to accept 50%-60% of what was originally owed.

There is 0% interest during the three-year payment period. Qualifying for nonprofit debt settlement can be difficult and consumers must make on time payments without missing for 36 months.

Where to find nonprofit debt settlement: This form of debt settlement is still new, and only available at nonprofit credit agencies. Those who wish to find companies should search online using the phrase “nonprofit debt settlement.”

Who is right for nonprofit debt settlement: Consumers who defaulted on their credit card debt should consider nonprofit debt settlement.

Bankruptcy

Bankruptcy might seem like an enticing option since it is marketed as a “do-over, but this should only be a choice if other debt-relief options will not solve your problem. Bankruptcy has the most negative impact of any debt-relief option.

There are two types of personal bankruptcy: Chapter 7 and Chapter 13.

To qualify for Chapter 7, a consumer must pass a “means test” that requires their income to be less than the median income for their state. In Wisconsin, which would be income less than $33,327.

If you don’t pass the means test, you could file for Chapter 13 bankruptcy.

In Chapter 13, you have a repayment plan approved by the court that allows you to keep your assets in exchange for making regular payments to pay down the debt. This plan typically lasts 3-5 years, with any unsecured debts like credit cards being discharged at the end.

Consumers should note that there are severe consequences to filing for bankruptcy. Credit scores drop 100-200 points. Filing bankruptcy is a negative on your credit report for 7-10 years, making it difficult to get a loan.

Wisconsin also has a Chapter 128 debt amortization plan, which is a low-cost alternative to bankruptcy that focuses on consolidating debt with a personalized debt plan. The debts typically are paid off in 36 months.

This Wisconsin debt relief option can also halt late fees, wage garnishment, and accruing interest. Chapter 128 allows consumers to customize their approach by selecting the unsecured debt that makes sense for your specific situation. Chapter 128 typically includes debt from medical bills, credit cards, civil judgements, payday loans, or personal loans.

Where to file for bankruptcy: Before filing at a federal bankruptcy court, consumers are encouraged to consult with an attorney due to the complex nature of bankruptcy laws.

Who is right for bankruptcy: If you feel that you have exhausted all of your other options and are still unable to pay off your debt in five years, bankruptcy may be the only option.

Statute of Limitations in Wisconsin

The statute of limitations is the amount of time a creditor or debt collector has to file a lawsuit against a consumer for unpaid debts. If the collection agency does not file within the time frame, the consumer can no longer be sued for that specific debt.

In Wisconsin, the statute of limitations is six years and begins on the date of the last payment on an account. This also means that if you make a payment on your debt at any time in the six-year span, the clock restarts.

Wisconsin residents have a number of rights when it comes to paying off debt and it is important to understand each one to avoid being taken advantage of by collectors. If a creditor files a lawsuit, it is vital for consumers to know how to defend themselves appropriately.

Debt Collection Laws in Wisconsin

Debt collection agencies like to use high pressure tactics like threats of garnishments to intimidate the consumer into paying the debt. Although the U.S. has laws to protect consumers from debt collectors, some states have their own laws to further protect residents.

Debt Statistics in Wisconsin

Wisconsin is a prime example of a state that had to shake off the turmoil COVID-19 left so many in. Here is where residents currently stand:

Consumer debt: The average consumer debt in Wisconsin is $81,220, over $15,000 less than the national average.

Mortgage debt: Wisconsin residents hold some of the lowest debt when it comes to mortgages, being nearly $100,000 under the national average at $152,010

Student loan debt: Wisconsin is ranked No. 14 in student debt with the average borrower having $31,894 in debt.

Credit card debt: Wisconsin has the second lowest credit card debt in the nation with an average of $4,376.

Auto loan debt: Car buyers in Wisconsin owe an average of $16,773 in auto loan debt, nearly $5,000 less than the national average.

Average credit score: Wisconsin is second in the nation for highest credit score, with an average score of 735.

Identity theft: In the past year there were 11,253 cases of identity theft in Wisconsin, 20th lowest in the U.S.

Foreclosures and bankruptcies: Wisconsin has been on the steady decline with bankruptcies, with 9,279 filed in the last year, nearly 3,000 less than the year before.