Debt Relief Options in Maryland

Debt Relief Programs in Maryland

Debt relief in Maryland can come from several entities, among them, banks, credit unions, credit counseling agencies (nonprofit and for-profit), and online lenders. The goal: To be freed from debt, especially credit card debt.

Each entity offers different approaches, so shop and investigate before making a final decision.

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

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

Debt Management

A debt management program involves counselors from nonprofit credit counseling agencies working with lenders to reduce the interest rate on credit card debt. In 2022, the average interest rate on credit cards was 16.7%. Miss two payments and the rate can go to 25%-30%.

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

If you owe $10,000 on credit cards, you can reduce the monthly interest payment by $144 a month, if you were paying 25% interest and got your rate reduced to 8%. That $144 can be used to pay off debt faster. Counselors at nonprofit credit counseling agencies factor your income and expenses and calculate a plan that works for you to eliminate your credit card debt.

Credit score is not considered when enrolling, a benefit to many. On-time payments mean you can be debt-free in 3-5 years; 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 higher rates.

» 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? – Anyone in Maryland with high-interest credit card debt would be helped by this program. Debt management 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 large loan Marylanders use to pay off debt on multiple credit cards. Instead of four or five credit card payments per month, you make one monthly loan payment to the bank/credit union that gave you the loan. The interest rate should be considerably lower as long as your credit score qualifies you for the loan. The rate can be even lower if  you put up collateral, like your home or car, to back the loan.

Typically, people pay around 10%-12% interest for a debt consolidation loan, compared to the 25% they likely are paying to credit card companies. Debt consolidation 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 credit cards, you must pay the debt consolidation loan and whatever amount you spent with credit cards.

And you must qualify. A poor credit score might disqualify you.

» Where to find it? – Most banks, credit unions and online lenders offer debt consolidation loans. It’s worthwhile to shop 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 Maryland offer a lower interest rate than the high-interest rates charged by credit card companies.

Debt Settlement

Debt settlement allows 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 – then negotiating with one or more creditors to get them to agree to a plan.

As good as this sounds for Marylanders, 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 this way: You, or a company you hire, negotiates a settlement amount with creditors. You stop making 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 your accounts. Those should be added into and considered for any plan.

» 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 Maryland 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.

Maryland consumers will pay only 50%-60% of what they owe in a nonprofit debt settlement plan. There is no negotiating involved. The final figure 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 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 Marylanders who face overwhelming credit card bills they know they can’t pay. If you keep up with the 36 payments it takes to get through the program, you won’t have to pay any interest on the debt.

Bankruptcy

Bankruptcy scares most people, but for some Marylanders it might be the best debt-relief solution available. You get a second chance to get your credit card debt and 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 from the sales 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? – Bankruptcy can be complicated. Though you could file on your own, it is best to find attorneys in Maryland 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 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 Maryland

Maryland is a consumer-friendly state. The statute of limitations allows a creditor three years to collect on debts. That’s a shorter timeframe than many states. There also are limits on how long a debt collector has to collect on a debt. If a judge decides the collector is in the right, they only have 12 years to collect the settlement. Note: Debt collectors can still pursue the debt after three years, they just can’t sue to collect it.

Debt Collection Laws in Maryland

The Maryland Consumer Debt Collection Act (MCDA) extends protections to Maryland consumers beyond the federal Fair Debt Collection Practices Act. Collection agencies in Maryland must be licensed and are subject to state regulations. The MCDA also covers creditors as well as debt collectors. Among the actions prohibited by the MCDA are various types of threats, deceptions, and  communicating at odd hours, i.e. late at night. Debt collectors may not contact your employer unless they have a court judgment against you. Even so, debt collectors cannot call, write or visit a debtor at work if they know your employer does not allow that contact.

Debt Statistics in Maryland

The Maryland Student Loan Debt Relief Program, passed in 2017, helps those who borrowed more than $20,000 to go to college and have $5,000 in outstanding debt. Maryland provides tax credits to alleviate the burden. More than 40,000 residents have received more than $40 million in state tax credits since the program started. The state made $9 million in tax credits available in 2022 that should help 9,000 individuals. Here’s some more numbers on Maryland’s debt situation:

• Student loan debt: Marylanders rank second in the nation in average student loan debt, behind only the District of Columbia. The average student loan debt in the state is $43,165.
• Credit card debt: Marylanders like to use their credit cards. The state ranks fifth in the nation with an average credit card debt of $5,977.
• Credit score: Maryland’s average FICO score at the end of 2021 is 716, an increase of two points from 2020.
• Unemployment: As of February 2022, the unemployment rate in Maryland was 5.0%, seventh highest in the nation.
• Average income: Perhaps one reason Marylanders borrow is they do well. The state’s average household income is $130,850 and median income is $93,236. Numbers reflect income earned between January and December of 2021.