How to Settle Your Debts in Connecticut

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.