Debt Relief Options in Arizona

Debt Relief Programs in Arizona

In Arizona, banks, credit unions, credit counseling agencies (nonprofit and for-profit), and online lenders can help consumers find solutions or relief to debt.

Each offers different approaches, so it’s wise to shop before making any decision.

Programs offered in Arizona fall under five headings: debt management, debt settlement, debt consolidation, nonprofit debt settlement and bankruptcy. Positives and negatives of each should be carefully considered.

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

Debt Management

A debt management program can reduce the interest rate on credit card debt and make monthly payments more affordable. In 2022, the average interest rate on credit cards was 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%.

Counselors from nonprofit credit counseling agencies work with lenders to get  interest rate down to 8%, sometimes lower.

Suppose you owe $5,000 on credit cards, you can reduce the monthly interest payment by $72 a month if you pay 25% and have your rate reduced to 8%. That $72 can be applied to debt to pay it off faster. Counselors at nonprofit credit counseling agencies try to find an approach that works for you by factoring income and expenses and calculating 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? – If you have fallen behind in credit card payments, debt management lowers interest rates and chips away at the amount owed until you are free from the debt in 3-5 years. Anyone in Arizona with high-interest credit card debt would be helped by this program

Debt Consolidation Loan

A debt consolidation loan is one big loan Arizonans use to pay off debt on multiple credit cards. The advantage is that instead of 4-5 credit card payments every month, you make one monthly loan payment to a bank or credit union. The interest rate should be considerably lower than the credit card rates, but you will need a good credit score to qualify. You may also be asked 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, which simplifies payments and saves money. It seems like a really good deal, and can be.

However, you must consider the fact that you are taking on one big loan to pay off several small ones. You still owe the same amount. If you don’t have the discipline to stop using your credit cards, you’ll be adding to your burden and you must pay the debt consolidation loan and whatever you buy on credit cards.

Also, you must qualify. 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 Arizona 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 a 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 have them agree to this plan. There are negatives to weigh. Debt settlement 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.

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 your 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 Arizona 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 with this program is the same as with traditional debt settlement: pay less than what you owe to settle a debt.

However, with this program, Arizona consumers will pay 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. To qualify, a consumer can’t have made a payment in 180 days and agrees to make fixed payments for 36 months.

It’s vital to remember: 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 the repayment period.

» Where to find it? – The program is 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 Arizonans 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 is a frightening option for most people, but for some Arizonans, it might be the best debt-relief solution available. You get a second chance to get your finances in order and not lose 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. The filing 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 and ability to borrow.

» Where to find it? – Though you could attempt to file bankruptcy on your own, it is best to find attorneys in Arizona 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.

» Is this right for you? – If you can’t pay off all your debts in five years, bankruptcy is an viable option. It’s a fresh start many people need. 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 Arizona

Arizona has different timeframes for different debts. The statute of limitations for credit card debt is three years. For car loans, mortgages and medical debts it’s six years, and for unpaid taxes it’s 10 years. The timeframe indicates the amount of time a debt collector has to collect a debt. Once the limit is reached, the debt becomes uncollectible via the legal system.

Debt Collection Laws in Arizona

Arizona relies on federal law to protect consumers, a quirk for a state that often wants to limit federal involvement in state affairs. The Arizona Attorney General’s web site points to the federal Fair Debt Collection Practices Act, which offers several protections. The state does require all creditors to be licensed to collect debts. A debt collector has five days after first contacting an individual to send a written notice with the amount of the debt and the creditor. Consumers have 30 days to dispute the debt, and to ask for verification. Arizona also has a process for filing a consumer complaints against unscrupulous collectors at the Attorney General’s web site.

Debt Statistics in Arizona

The Arizona city of Glendale received a dubious honor in early 2022. The city’s median credit score of 517 was ranked the lowest of 2,500 U.S. cities. Here’s some other debt statistics in the state:

• Median mortgage payment: Average mortgage debt reflects a state’s home values. Arizona’s median monthly payment is $1,457. Seven states top $2,000 in average monthly mortgage payment.
• Bankruptcies: In 2021, Arizona saw less than 1,000 bankruptcy filings per month. That’s the first time that has happened since 2007.
• Personal income: Arizona’s personal income rose by 7.2% in 2021, reflecting the recovery from the pandemic. Per capita income in the state at the end of 2021 was $54,301.
• Child poverty: The child poverty rate in Arizona is 19%. It is estimated that 405,000 Hispanic or Latino children live below the poverty level.
• Unemployment: Arizona’s unemployment rate of 3.6% is worse than 21 states and better than 28.