Debt Relief Options in Colorado

Debt Relief Programs in Colorado

Colorado has a number of companies that specialize in helping consumers pay off credit card debt including banks, credit unions, online lenders, and both for profit and nonprofit debt relief companies.

Consumers can choose from five programs that help pay off credit card debt. Those programs include debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement, and bankruptcy. Each program has positives and negatives associated  so it is important to research each option thoroughly.

Here is an outline of each program:

Debt Management Program

A debt management program is a way to pay off high-interest credit card debt without having to take out a loan. Lenders agree to reduce the interest rate on credit card debt to somewhere around 8%, allowing consumers to pay off their debt in 3-5 years.

Where to find debt management programs: Debt management plans are offered by nonprofit credit counseling agencies. The credit counselors work with creditors to reduce interest rates to a manageable level and work with consumers to create a budget that has room to pay off the debt. The program works on unsecured debts like credit cards, but not secured debts like houses or cars.

Who is right for debt management programs: Anyone with a high interest credit card would be a good prospect for debt management. The plan does require consumers to stop using credit cards and make on-time payments to eliminate the debt.

Debt Consolidation Loan

The goal of a debt consolidation loan is to combine high-interest credit card debts into a single monthly payment to a single source, at a reduced interest rate.

Most commonly, debt consolidation loans consist of borrowing enough money from a bank, credit union, or online lender to pay off all your credit card debt. The key factor in borrowing is your credit score, which should be above 700 to qualify for the best rates; 670-699 to get fair rates; and anything under 670 likely will involve a high interest rate loan.

Where to find debt consolidation loans: A debt consolidation loan is another name for a personal loan. Most banks, credit unions, or online lenders offer this service if you meet the credit score standard. Shop around to find the best interest rates and loan terms.

Who is right for a debt consolidation loan: Anyone with a credit score of 670 or higher and the discipline to stop using credit cards would be a good candidate for this relief option.

Debt Settlement

Debt settlement is an option where the consumer pays less than what was originally owed. The process typically takes 2-3 years and companies often claim that they are able to cut your debt in half. Though his option may sound enticing, many of the claims are misleading and can actually worsen your situation.

Something to consider with debt settlement is that it will have a huge negative impact on your credit report that will last seven years. Your credit score could drop more than 100 points. The IRS also considers forgiven debt of more than $600 as income that must be declared on your tax return.

Where to find debt settlement: Though you can do this yourself, typically consumers hire a for-profit company that specializes in this service. The company negotiates on your behalf with the credit card companies to arrive at a lump sum payment that satisfies the debt. Card companies are not obligated to accept settlement offers.

Who is right for debt settlement: If you have gotten to the point of not making payments on your debt because it is too large, this program could help. This also is considered a last-chance option to avoid bankruptcy.

Nonprofit Debt Settlement

Nonprofit debt settlement is a program similar to traditional debt settlement in that it allows consumers to pay less than what is owed but instead of negotiating a lump-sum payment, creditors agree in advance to accept 50%-60% of what is owed to resolve a debt.

Qualifying for this form of debt relief is not easy. Consumers are required to make fixed payments for 36 months with no leniency for missed payments. The advantage to the program is that there is 0% interest on the debt and the program is accredited by the National Foundation for Credit Counseling (NFCC).

Where to find nonprofit debt settlement: The program is new, so there are only a few nonprofit credit counseling agencies offering it. Consumers should search online using the phrase “nonprofit debt settlement” to find the agencies that offer the program.

Who is right for nonprofit debt settlement: This program is ideal for those who are facing overwhelming credit card bills, but don’t have the income to pay them off. As long as the 36 monthly payments are kept up with, this option remains interest-free.

Bankruptcy

Bankruptcy should always be a last option for those in financial peril but may be the best choice. Bankruptcy gives consumers a second chance to get their finances in order and can be done without losing many of your possessions.

There are two major types of bankruptcy, Chapter 7 and Chapter 13. In Chapter 7 bankruptcy you must qualify by passing a “means test” which is a measure of your income being less than the median income for your state. So, in Colorado your income must be below $36,964 in order to pass the “means test.”

If you don’t pass the means test, you can file for Chapter 13 bankruptcy. In Chapter 13, you create a repayment plan that allows you to keep your assets in exchange for making regular payments to the court trustee to pay down debt. The repayment plan lasts 3-5 years, at the end of which, any unsecured debts are discharged.

One thing to note is that the consequences for bankruptcy are severe. Your credit score may drop 100-200 points, depending on where it was when you started. Bankruptcy also stays on your credit report for 7-10 years, making it difficult to get a loan for a home or car.

Where to file for bankruptcy: Bankruptcy must be filed at a federal bankruptcy court. Bankruptcy laws are complicated, so it is always wise to consult an attorney before filing.

Who should file for bankruptcy: If you have exhausted all of your options and are unable to pay off your debt in less than five years, bankruptcy might be the best available option.

Statute of Limitations in Colorado

The “Statute of Limitations” for credit card debt is a law limiting the amount of time lenders and collection agencies have to sue consumers for nonpayment. That time frame is set by each state and varies from 3-10 years.

In Colorado, the statute of limitations on debt is three years for written contracts, oral contracts, promissory notes, and open-ended accounts. Colorado is one of the few states where time limits for collecting debt are the same across every different platform.

The purpose of a statute of limitations for credit card debt is to prevent creditors from taking consumers to court long after evidence of the debt has been discarded or disappeared.

Debt collectors can still try to collect debt after the statute of limitations expires, but can’t take you to court to get a judgment for it.

Debt Collection Laws in Colorado

According to Colorado law, creditors or debt collectors can charge debtors for breach of unwritten contracts within three years after the cause of action accrues. This provision applies to credit card debts, rent, damages resulting from detention of personal property, and recovery of personal property.

The good news for those struggling is collectors must follow the Fair Debt Collection Practices Act, which was created to ensure that debt collectors cannot cross certain boundaries when collecting the debt.

Debt collections rights include debt collectors not being allowed to use profane language, contact you at work, call outside 8am-9pm, contact others about you, or reveal to others that you owe money.

Colorado has several other codes in place to protect consumers and regulate debt collection practices. The Colorado Fair Debt Collection Practices Act prohibits collection agencies from harassing borrowers or using unfair or misleading tactics to collect debts.

Additionally, Colorado residents do have some cover for their income and assets in the case of collection actions. Up to $75,000 of your home, $7,500 of your car, and 75% of your income are safe from creditors in the state.

Debt Statistics in Colorado

As most Americans, residents of Colorado were hit hard by the pandemic, but are making a strong comeback. Here is the average debt citizens are carrying in 2022.

Consumer Debt: Colorado has some of the highest consumer debts in the nation just behind California with an average of $140,327 at the end of the fiscal year 2021.

Mortgage Debt: Mortgage debt in Colorado is fourth highest in the nation with an average of $297,813.

Student Loan Debt: Student debt in Colorado is right in line with the national average with $36,822 and is 14th highest among the other 50 states.

Auto Loan Debt: The average auto loan for residents of Colorado is $21,593, 18th most in the nation.

Credit Card Debt: The average credit card debt in Colorado is $6,416 which is only a few hundred dollars above the national average of $6,194.

Credit Scores for Colorado Residents: Residents of Colorado are on a steep climb when it comes to average credit scores. Colorado has raised its credit score from 718 to 725 in just one year, 15 points over FICO’s national average of 710.

Bankruptcies and Foreclosures:  Colorado has 2,389 cases filed in 2022, a 32% decrease compared to the 3,467 fileda year ago.

Identity Theft in Colorado: In 2021, there were 33,572 cases of identity theft logged by the FTC1, seventh highest in the nation.