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How to Settle Your Debts in Connecticut

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In a Nutshell

Before committing to the debt settlement process, it’s important to determine whether you have the resources to make a debt settlement work for you. If your situation is a good fit for this process, this guide will give you a solid overview of what you can expect from this debt management approach. 

Written by Upsolve Team
Updated December 20, 2023

Former U.S. senator and presidential candidate, George McGovern, filed for bankruptcy in 1991 when one of his investments, a hotel in Connecticut, went out of business. Later,  in 2006, McGovern and his wife raised funds for an $8.5 million library named for them at Dakota Wesleyan University.

Greenwich resident, Vince McMahon, filed for bankruptcy in 1976 before founding the WWE and XFL. His current net worth is $3.2 billion. Failure to pay income taxes to the IRS over five straight years, as well as a failed investment, caused McMahon’s financial problems.

Like George McGovern and Vince McMahon, you too can find the road to financial recovery, even if your finances are currently hovering around “rock bottom.”  A Connecticut debt settlement program is one solution you may be able to leverage on your road to debt relief. The debt settlement process allows you to pay less than the total amount due on a specific account. Essentially, you make a one-time lump sum payment or two or three payment installments in exchange for partial loan forgiveness and the closure of your account. Creditors prefer payments made in a lump-sum since that arrangement minimizes the risk of further default. You can settle your debts on your own, or, if you like, you can hire a debt settlement company to negotiate with creditors on your behalf. 

Debt settlement works best for those who either have money available or who can sell a valuable asset to fund their settlement offers. If you can’t manage either of these approaches, you may want to consider some of the debt management alternatives outlined at the end of this guide. Also, if you have a good credit score and care about preserving it, you may want to consider debt settlement alternatives, as this process will temporarily damage your credit score.  

Unsecured debt, such as credit card debt, is generally a good candidate for debt settlement. If you only owe debts to a handful of credit card companies and collection agencies, then negotiating a settlement agreement with each shouldn’t be too difficult. By contrast, settling a secured debt obligates you to return the collateral, which may be something you need, like a car. As a result, if your debts are primarily secured ones, you may want to speak with a credit counselor about the best debt management solutions for your situation.

Learn More Through Free Nonprofit Credit Counseling 

While credit counseling is not a debt relief solution in and of itself, it is a great resource that is available, at no cost, to anyone interested in learning about their debt management and debt relief options. A one-time credit counseling session with a nonprofit credit counseling agency is free, and allows you to speak with a professional about your unique financial circumstances.

Additionally, credit counseling agencies often offer more general money management assistance, such as financial education materials and budgeting help. Credit counselors are educated in personal finance and can tell you whether debt settlement is a good fit for your situation. They can assess your finances, help you set short-term and long-term goals, and help you form an action plan to achieve future financial stability.

The risks of credit counseling are limited, as long as you work with an agency that is a member of the National Foundation for Credit Counseling (NFCC). This organization holds its member agencies to the highest standards, which allows consumers to trust the guidance they receive from the credit counselors that they employ. 

How To Settle Your Debts in Connecticut

Before committing to the debt settlement process, it’s important to determine whether you have the resources to make a debt settlement work for you. If your situation is a good fit for this process, this guide will give you a solid overview of what you can expect from this debt management approach. 

Collect the Details About Your Debts

To begin the process of determining whether debt settlement might be a good option for you, gather the paperwork that contains the relevant details about all your debts, not just your unsecured debts. Your most recent account statements will show the full amount of any account’s outstanding balance, interest rate, and monthly payment amount. You’ll want to do this for all of your debts, not just those you hope to settle, as this preparation will help to provide each of your creditors (and your credit counselor) with a complete snapshot of your current financial state.

Make sure that you know your current credit score and that you pull a free credit report from each of the three credit bureaus at this time as well. Your credit report will allow you to review the details of each debt, give you a sense of your debt burden as a whole, and help you to decide which debts are the best candidates for settlement. If you’ve defaulted on any unsecured debts and a fair amount of time has passed, your debt may have been sold or assigned to other collection agencies. In this case, your credit report will let you know who “owns” your debt and therefore who you should approach about settling it. 

Collect Details About Your Ability to Settle Your Debts

It’s important to have a “wide lens” view of your finances before deciding to settle your debts. If you can’t make the required payments, your debt settlement efforts will fail. By getting a strong sense of your income and expenses, you’ll place yourself (and your credit counselor) in a better position to make an informed decision about your debt management options. 

If you earn regular wages, it should be easy to forecast your future income for budgetary purposes. Once you’ve accurately calculated how much take-home income you average monthly (and can rely on during the few months you’ll be managing settlement offers), consider your monthly fixed and variable expenses. Fixed expenses remain the same from month-to-month. Cable, internet, car insurance, and even a monthly student loan payment are examples of fixed expenses. Variable expenses like groceries and gas fluctuate monthly based on necessity. Estimate your variable expenses by reviewing your bank statements for the last three months and then dividing total expenses by three for a monthly average.

The amount remaining after you subtract both fixed and variable expenses from your take-home income is your disposable income. If you don’t have money available or property to sell to fund your settlement offers, you’ll need to have enough disposable income available over the period of 2-3 months to fund settlement offers for overdue accounts. If you don’t have enough disposable income available to fund offers, you may want to consider a debt management or another debt management alternative.

Learn About the Costs to Settle Your Debts in Connecticut

There’s a cost involved in settling your debts. The longer your accounts linger in “past due” status as you negotiate settlements, the more late fees and penalties related to default on the debt will accrue. Then there are also the costs that you’ll incur if you hire a debt settlement company. Whether you use a debt settlement company or take responsibility for debt negotiations yourself, time is money.

A debt settlement company’s fee may be calculated based on a percentage of your total debt or a percentage of your debt savings. A fee based on the amount of debt that a consumer saves should provide the debt settlement company with an incentive to get better results. Both federal and Connecticut state law prohibits a debt settlement company from collecting fees until it has fully performed and settled your debts.

Decide Whether to Work With a Connecticut Debt Settlement Company

If you’re organized and have good communication skills, you can settle your debts directly with your creditors. Not only will you save the costs of a debt settlement company’s services, you will benefit from complete control over every step of the process.

The drawback to a DIY approach is that you will need to expend a large amount of time and effort. It will be your responsibility to keep track of everything during the debt settlement process. If you handle the debt settlement negotiations personally, you may lack time to deal with every single creditor.

Also, debt settlement companies are much more experienced in settling debts than the average consumer. These companies possess the ‘insider knowledge’ of what a creditor typically accepts, and they can provide necessary guidance throughout the settlement process. As a result, a DIY approach works best for some and working with a company is a better approach for others. You should do whatever makes sense for you and your situation uniquely. 

Research Connecticut Debt Settlement Companies

Connecticut law regulates “debt collectors,” “debt negotiators,” and “debt adjusters,” and requires all three to hold valid state licenses. Consumers can verify whether debt relief companies are licensed to do business before they choose to work with one. 

Connecticut law limits all fees charged by debt negotiators. A debt negotiator of unsecured debt may not collect total fees greater than ten percent (10%) of the amount by which the consumer’s debt is reduced. A debt settlement company in Connecticut can only charge a maximum one-time upfront set-up fee of fifty dollars. Each contract must contain a statement certifying that the person offering debt negotiation services has reviewed the consumer's debt, and the likelihood that the proposed debt negotiation services would reduce the consumer's debt has been individually evaluated. Each contract must permit the consumer to cancel the contract within three business days after signing it. It must contain a clear and conspicuous caption, “Debtor's three-day right to cancel.”

Additionally, a Connecticut debt negotiator cannot receive any fees until it fully performs services. A person offering debt negotiation services may receive periodic payments as services are rendered that are reasonable, provided such payments are clearly stated in the contract.

Any contract that does not comply with Connecticut law is voidable, meaning the consumer has the option of canceling it. If a debt adjuster imposes or receives any charge not listed in the written contract, the consumer may also cancel the agreement and recover all fees.

Check the Connecticut Attorney General’s website for information. Consult with the Better Business Bureau to learn about licensed, competent debt settlement companies, including debt adjusters and debt negotiators in Connecticut. Engaging in this research now will help you to avoid being taken advantage of later on. 

How to Make Your Debt Settlement Work

A debt settlement process is only successful when you make the monthly payments on time. If you get paid on the 15th, don’t schedule the payment for the 14th. Note the date when your payment is due to ensure a prompt and timely turnaround. This day shouldn’t fall on the same day that your mortgage/rent or car payment is due. You can use any surplus of money to make an extra payment into your debt settlement. If you’re unable to set aside additional funds in your budget for an emergency, you can possibly get a credit card with a reasonable interest rate and pay it off over a short period of time. Know that if you pay for an emergency with the funds set aside for your settlement offer and default on your debt settlement payment as a result, your total amount will again become due.

Alternatives to Debt Settlement

You have other options if you find it difficult to form a good debt settlement plan. You may have to consider other alternatives because of personal circumstances such as your amount of debt, types of debt, and credit score. Credit counseling agencies can help you learn about the positive and negative aspects of other debt-relief options, such as debt consolidation and debt management plans. Depending on your situation, even bankruptcy may be a preferable option.

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Connecticut Debt Consolidation

A Connecticutdebt consolidation loan may be used to reduce your total amount of debt. These loans are available in many different forms, including credit card balance transfers and personal loans. Debt consolidation combines unsecured debt into a single account, which is managed with a single payment each month. The goal of a debt settlement is the partial payment of your debts. However, consolidation loans and debt management plans both aim for full payment at better repayment terms. This allows each debt consolidation option to do less damage to your credit score than debt settlement would. 

Connecticut Debt Management Plan

A Connecticut debt management plan managed by a nonprofit credit counseling agency is an option worth considering, no matter what your credit looks like. Debt consolidation loans are usually only available to those with good credit. However, you can enter into a debt management plan with manageable terms and a workable payment schedule even if your credit is poor. You’ll make a single payment each month to the credit counseling agency after a repayment plan is negotiated with your creditors. The agency will then make payments to your creditors on your behalf.

Connecticut Bankruptcy

If debt settlement, debt consolidation, and debt management plans aren’t viable solutions for your circumstances, please consult with an experienced Connecticut bankruptcy attorney about whether bankruptcy might be right for you. Most bankruptcy attorneys provide free, initial consultations. Upsolve can also help if you are considering bankruptcy. We help thousands of Americans file bankruptcy cases every year, whether they want to file with or without an attorney’s assistance. Alternatively, Upsolve can connect you with a capable bankruptcy attorney conveniently located near you.

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