Debt Relief Options in Georgia

Debt Relief Programs in Georgia

Relief for debt can be found in Georgia, with several options and/or programs addressing what can be burdensome problem. Credit counseling agencies (nonprofit and for-profit), banks, credit unions, online lenders and debt settlement companies work with consumers to pay off credit card debt.

All offer different approaches. The five debt-relief programs in Georgia include debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement and bankruptcy.

Each program has plusses and minuses for Georgians to ponder.

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

Debt Management

Debt management programs work with lenders to reduce the interest rate on credit card debt to somewhere around 8%. 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 climb again, up to 25%-30%.

So, if you owe $5,000 on credit cards and reduce their interest rate from 25% to 8%, the interest on your monthly payment drops from $105 to $33 per month. That means you have an extra $72 each month 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.

Other pluses for this appealing solution: 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, though that means the credit card company will take back 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 to a manageable level. The program covers unsecured debts, like credit cards, but not secured debts, like houses or cars.

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

Debt Consolidation Loan

A debt consolidation loan is one loan used to pay off all debt for multiple credit cards. You make one monthly payment to the bank/credit union instead of three, four or five credit card payments. The interest rate 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% interest rate they would be paying to credit card companies. This is a single payment to a single entity, at a lower interest rate that saves money and simplifies payments. It’s a big savings, which makes this look like a really good deal. And it can be.

However, you take out one big loan to pay off a bunch of small loans … yet you still owe the same amount. If you don’t stop using your credit cards, you must pay the consolidation loan, plus whatever you’re buying with credit cards.

And that’s if you qualify for the loan. A poor credit score could eliminate you.

» Where to find it? – 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 it right for you? – It’s a wise option for anyone with a good credit score (670 or higher) and the discipline to stop using credit cards. Generally, consolidation loans in Georgia offer a lower interest rate than ones charged by credit card companies.

Debt Settlement

Debt settlement allows a consumer to pay off a debt for less than what is owed. The payment usually is made in a lump-sum and comes after 2-3 years of saving money in an escrow account and negotiating with one or more creditors so that they agree to the plan. As good as this sounds for Georgians, 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.

The approach works this way: You or a company you negotiate a payment amount agreeable to you and the credit card companies. You stop sending even minimum payments, which means late fee penalties and interest are added to what’s owed. Instead, you pay into an escrow account. When that account gets big enough, the company negotiates an agreement with the creditors. Georgia consumers 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.
The benefit to the credit card company is that it receives some money, as opposed to little or nothing if you default.

» 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 it right for you? – Anyone with large amounts of debt who is desperate for a solution so they don’t have to declare bankruptcy should look at this option. If you have $50,000 in credit card debt – two million American consumers do – getting it knocked down to $25,000 sounds pretty good.

Nonprofit Debt Settlement

Nonprofit debt settlement was created in 2021 by nonprofit credit counseling agencies and the lure is the same – the consumer will pay only 50%-60% of what they owe. How that happens is completely different from for-profit debt settlement companies.

Instead of long negotiations, the lenders agree to the terms upfront. Rules that must be followed include one that states the Georgia consumer hasn’t made a credit card payment in 180 days. Also, the consumer must make fixed payments for 36 months – you can pay off early, but there are no extensions – and all payments must be made on time or the program is canceled.

The benefit to the Georgia consumer is that there is 0% interest charged during the 36-month repayment time.

» Where to find it? – The program started in 2021, so only a few nonprofit credit counseling agencies offer the program and only a few credit card companies and banks participate. Nonprofit credit counseling agencies are certified and accredited by the National Foundation for Credit Counseling. Federal law requires the agency act in the client’s best interest. Search online for “nonprofit debt settlement” to find an agency that will provide this program.

» Is it right for you? – Georgians who face overwhelming credit card bills but lack the income to pay them off. You won’t have to pay any interest on the debt, as long as you keep up with the 36 monthly payments.

Bankruptcy

Bankruptcy is painful, but for some in Georgia it might be the best debt-relief solution available. It gives you 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. Key assets are exempt from this process, 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. Your credit score may drop 100-200 points. Also, bankruptcy stays on your credit report for 7-10 years, making it more difficult to get credit for a home or car loan in the future.

» Where to find it? – Bankruptcy attorneys in your area are a must to get through this process successfully. He or she knows the ins and outs of the system and can protect you and your family as much as possible in the process.

» Is it right for you? – Look at your income and expenses. If you can’t figure how to pay your debts in five years, bankruptcy might be the best debt-relief option available.  It’s always best to try nonprofit counseling, settlement or consolidation before bankruptcy, but if those are not for you, bankruptcy is the final resort.

Statute of Limitations in Georgia

In the state of Georgia, written contracts have a statute of limitations of six years from the time the debt was due and payable. Oral agreements have a statute of four years, but from the time of default, not the time the debt was due.

Debt Collection Laws in Georgia

Georgia generally relies on federal law to protect consumers. The Fair Debt Collection Practices Act (FDCPA) prohibits collectors from using unfair or deceptive practices. They also cannot harass or call at inconvenient times. One area where the state passed a law to protect the consumer deals with garnishment of wages. A debt collector in Georgia can only garnish up to 25% of weekly disposable income or the amount of weekly disposable income that exceeds 30 times the federal minimum wage – in early 2022 the amount over $217.50 per week.

More Debt Statistics in Georgia

A couple key stats show that the residents of the state of Georgia have their struggles with debt. They involve credit score and student loans.

• Payday loans: Georgia bans payday loans. There are no payday lenders in the state. Those who have paid the high interest rate charged by payday lenders would say this ban is a very good thing, but those who need help to get cash quickly must find other ways to find a loan.
• Credit score: Georgia’s average score is 693, well below the national average of 716. Georgia is one of only 10 states in the country with an average credit score below 700.
• Student loans: Georgia’s average student loan debt is $36,689, the third highest total in the nation and 7% more than the average. The 1.6 million student loan borrowers in Georgia owe in excess of $5.8 million.
• Credit card debt: Georgia’s average credit card debt is $5,693. That ranks seventh highest in the nation.
• Unemployment: The unemployment rate for Georgia at the end of 2021 was very low. The 3.3% rate is a very positive number, which is a bit of an offset to the money owed in other areas.