Debt Relief Options in Washington

Debt Relief Programs in Washington

There are a number of resources available for residents of the Evergreen State who find  themselves in financial peril.

Banks, credit unions, online lenders, for profit and nonprofit debt relief companies all have programs for helping consumers pay off debt. These programs include debt management, debt consolidation loans, debt settlement, and bankruptcy.

Each program has pros and cons, so it is important to understand each option thoroughly.

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. The debt is paid off in 3-5 years because lenders agree to reduce credit card debt interest rates to around 8%.

Where to find debt management programs: Nonprofit credit counseling agencies offer debt management plans and work with creditors to create a personalized monthly budget that includes room to pay down your credit card debt.  Secured debts like houses and cars do not work on this program, but unsecured debts like credit cards do.

Who is right for debt management programs: Consumers who have high interest credit card debt they are unable to pay are ideal for debt management programs. Consumers should know that these plans might require them to stop credit card usage and make payments on time.

Debt Consolidation Loan

Debt consolidation loans combine high interest credit card debts to a single monthly payment and pay it off with a loan at a reduced interest rate. Typically, these loans are done by borrowing money from a, bank, credit union or online lender.

To be considered for this type of loan, your credit score is very important. Your score typically needs to be above 700 to qualify, but you can also get good rates with a score of 670-699. If your score is under 670, the interest rates will likely be too high to consider.

Where to find debt consolidation loans: Credit unions, banks, and online lenders offer debt consolidation loans. In order to find the best loan terms and interest rates, you should compare lenders and options.

Who is right for a debt consolidation loan: If you are able to stop credit card usage and have a score that is above 670, debt consolidation loans might be the best option.

Debt Settlement

Through debt settlement, consumers are able to pay less than what was owed in 2-3 years. Although debt settlement companies claim that they can cut debt in half sounds tempting, it is seldom true and can worsen your situation.

Typically, debt settlement companies will ask you to stop credit payments which can lead to many late fees and interest  added to your debt, making it more difficult to pay. Debt settlement will have a negative impact on credit scores, causing them to drop over 100 points in many cases.

Where to find debt settlement: For-profit companies who specialize in debt settlement should be sought after when considering debt settlement. These companies negotiate with creditors to agree on a lump sum payment that settles the debt.

Who is right for debt settlement: Debt settlement is worth considering if your only other choice is bankruptcy. There are a lot of negatives involved in debt settlement and it’s worth noting that credit companies are under no obligation to accept  your offer. .

Nonprofit Debt Settlement

Nonprofit debt settlement is similar to debt settlement with one dramatic difference: there is no negotiating. Creditors agree in advance to accept 50%-60% of what is owed to settle the debt.

Consumers need to make on time payments for 36 months and will not pay any interest during that time. The National Foundation for Credit Counseling (NFCC) accredited this program.

Where to find nonprofit debt settlement: Because the program is still young, there are only a few nonprofit credit counseling agencies offering this form of debt relief. If consumers wish to find these agencies, they should search online using the terms “nonprofit debt settlement.”

Who is right for nonprofit debt settlement: For consumers who are unable to pay their credit debt, this option may be ideal. This version of debt settlement is beneficial due to the 0% interest rate on debt for three years.

Bankruptcy

Bankruptcy should always be the last option for those in debt because of the negatives associated with it However, bankruptcy does allow consumers to have a do-over with their finances without losing many possessions.

The two major types of bankruptcy are Chapter 7 and Chapter 13. To qualify for Chapter 7 consumers must pass a “means test” which compares your income to the median state income. For those in Washington, consumers must make less than $37,656. If you do not meet this requirement, you are still able to file for Chapter 13.

With Chapter 13, in exchange for making regular payments to the court trustee, you are able to keep your assets. This repayment plan typically lasts 3-5 years and at the end of the plan, any unsecured debts are discharged.

Consumers should note that there are severe consequences to filing for bankruptcy. Credit scores drop dramatically and stay on your credit report for 7-10 years, making it hard to get a loan.

Where to find 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 it feels as though all of your options have been exhausted and you are still unable to pay off your debt in the next five years, bankruptcy may be the only option.

Statute of Limitations in Washington

The statute of limitations is a law limiting the amount of time lenders and collection agencies have to sue consumers for not paying credit card debt.

In Washington, the statute of limitations on debt collection lawsuits is six years after the date of default or last payment on the debt account. When six years have passed, debt collectors can still attempt to collect these debts, but they cannot file a collection lawsuit.

Debt Collection Laws in Washington

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.

The Washington Collection Agency Act and Federal Fair Debt Collection Practices Act prohibit harassment, false or misleading statements, and unfair practices by collection agencies. Consumers who feel that they are being harassed have the right to sue the collection agencies for damages and lawyer fees.

Debt Statistics in Washington

The Evergreen state was hit hard by the pandemic but is making a strong comeback. Here is the average debt Washington residents are carrying.

• Consumer Debt: The average consumer in Washington carries $136,170 in debt, a 6.9% increase from the year before.
• Mortgage Debt: Washington is one of only three states whose average mortgage debt exceeds $300,000, with an average of $307,407. This is $70,000 more than the national average.
• Student Loan Debt: The average student debt in Washington is $35,510, nearly $5,000 under the national average.
• Credit Card Debt: The Evergreen State ranks 29th in the U.S. when it comes to credit card debt, with an average of $5,238.
• Auto Loan Debt: Residents in Washington have an average of $4,620 in auto loan debt, ranking 12th lowest in the U.S.
• Average Credit Score: The average credit score in Washington is 734, the fourth highest in the U.S.
• Identity Theft: Washington has had 77,129 identity theft cases in the last year which is the 7th most out of the states.
• Foreclosures and Bankruptcies: There have been 1,251 bankruptcies filed in the last year in Washington, 27th lowest in the U.S.