How to Settle Your Debts in Hawaii

Collect Details About Your Debts 

You will need evidence to prove your debts and expenses. 

Gather your bills and sort your debt and expenses into five categories:

• Government debt (state or federal student loans, back taxes, etc.)

• Secured debt (mortgage, auto loan, title loan documents)

• Medical bills (hospitals, doctors, labs)

• Unsecured debt that isn’t for medical bills (credit card debt, payday loans)

• Necessary expenses (rent, mortgage, utilities, groceries, gas, childcare)

Add the total amount of debt for each category. Determine the monthly payment for each category and the interest rate for all your debts. Feeling overwhelmed? Take a break. It’s mentally draining to review a pile of expenses, but keep in mind that debt relief is good for your health. A 2019 study at a university social research center demonstrated that debt relief reduces anxiety and improves cognitive functioning. This study also suggested that three months after getting lasting debt relief, you’ll likely make better financial decisions. 

If you have received complaints, judgments, garnishments, or other legal documents related to your debt, put those in a folder and plan to have a discussion with a nonprofit credit counselor and an attorney. These papers are important. There are laws that can help you and protect you. Finally, to make sure you’re not missing anyone, get a copy of your credit report. Under the Fair Credit Reporting Act (FCRA), the three major credit reporting agencies have to provide you with one free credit report per year, but they only have to provide the credit report if you request one.

Collect Details About Your Ability to Settle Your Debts 

Once you have gathered proof of your debts and expenses, you can start gathering evidence about your ability to pay your debts. Start a folder for income and assets. Put in the folder a copy of last year’s income tax return and proof of your last eight weeks of wages. If you’re not working, put a copy of your most recent Social Security, Social Security Disability, Workers’ Compensation, TANF, lawsuit awards, or any other type of payment that could be considered income. Add to the folder a copy of your mortgage agreement and car loan agreement. Your house and car are assets. Add a recent bank statement for each bank account that has your name on it. 

You may not use all of these documents during debt settlement calculations because there are laws regulating what is and what is not counted as for this process —but it’s best to put everything on the table when you talk to a nonprofit credit counselor, a Hawaii debt settlement company, or bankruptcy attorney. Add up your monthly income, then add up the value of your assets. When you meet with a nonprofit credit counselor, they will review your income and asset information with you. Your counselor will let you know what types of income are protected from creditors. For example, creditors cannot take your Veterans' Benefits or income from Social Security. The Federal Trade Commission has a list of federal benefits that are protected from creditors. Knowing what income sources creditors have access to will help you if you choose to talk to a Hawaii debt settlement company. If you have significant income and investments, make an appointment to talk with a bankruptcy attorney for advice.

Take a look at your numbers. You should have the sum of your total debt amount and expenses, and the sum of your total income and assets. Is the total of your income and assets higher than the total of your debt and expenses? Then you might be a good candidate for debt settlement. If your debt and expenses are much higher than your income and assets, you may want to consider filing for bankruptcy or contacting a bankruptcy attorney. You can always start with a nonprofit credit counselor if you are undecided. 

Learn About the Costs to Settle Your Debts in Hawaii

Debt settlement fees in Hawaii may be a percentage or flat rate, but by law, they can only apply to debts that are settled. If you have ten accounts and only five are settled using a Hawaii debt settlement company, the company can only charge you for settling the five accounts. U.S. News and World Report reported on November 1, 2019, that it’s common for debt settlement companies to charge a 15% to 25% fee on the forgiven debt. 

A Hawaii debt settlement company will open a new escrow bank account during the debt settlement process. Payments to creditors will be deposited into this account. The person that is managing the bank account to pay creditors may charge a fee for services and this cost could fall on you. The person managing the escrow bank account is called the “account administrator.” The escrow bank account set up for debt payments will cost money to maintain, and this will vary per bank. It could cost $250 or more per year. The American Bankers Association even reported it could be as high as $500 per year to maintain a bank account. 

You may also have to pay taxes on the forgiven debt if you save more than $600. If you have substantial debt and you’re successful in settling with your creditors, your taxable income will be increased by the amount of debt forgiven.

Decide Whether to Work with a Hawaii Debt Settlement Company 

The American Fair Credit Council reports that over two dollars are saved for every one dollar spent on debt settlement, and debt settlement efforts translate into a 30% savings on debt. Working with a Hawaii debt settlement company could be a wise investment. If you have a knack for negotiations, you can start the settlement conversations on your own. You do not have to use a debt settlement company to settle a debt with a creditor.

Debt settlement companies do have some advantages. They know the ropes of the business. They know which credit card companies will settle and which companies will put up a fight. The staff has a list of direct contacts and has learned how to craft a strategic winning proposition. They have the advantage of sharing settlement experiences and learning from everyone around them. They also have many clients. Your phone calls may not get returned. Your case may get shuffled to the bottom of the pile. 

When you are negotiating with creditors on your behalf, you know the status of your negotiations. You also have the advantage of negotiating with creditors that have no interest in talking to debt settlement companies. You will not have to pay another company fees for negotiations, but you will need a lot of time to make phone calls, organize and maintain the records and bills, and evaluate debt settlement scenarios. If you have a family and a full-time job, you might not have the time. In that case, it might be worth the cost to have a Hawaii debt settlement company handle creditor negotiations. 

Research Hawaii Debt Settlement Companies 

Before you commit to divulging your vital and personal information, research potential Hawaii debt settlement companies. Debt settlement companies are regulated by federal and state law, but that doesn’t mean every company follows the law. Hawaii’s Attorney General Office has information on credit fraud. The Federal Trade Commission (FTC) has a list of banned debt relief companies. The Consumer Financial Protection Bureau has a searchable Complaint Database. You can also do an internet search for the name of the Hawaii debt settlement company you are interested in and just add the word “reports” or “complaints” to the search. 

Debt settlement is often referred to as “debt adjustment.” However, in Hawaii, it is against the law to be a “debt adjuster,” except for certain people. Watch out for scams. After you review official government complaints and review Hawaii debt settlement companies online, call the companies and interview them. Ask them about fees, communication methods and standards, information required, types of debts settled, creditor negotiations, debt negotiations, interest rates, creditor offers, timely payments, late payments, late fees, mistakes, time to pay, locations, methods of payments, paperwork signing, credit ratings, risks, and options. Telemarketing laws require debt settlement companies to provide you with some of this information, even if they didn’t call you first. 

How to Make Your Debt Settlement Work 

Your debt settlement payment plans needs to be realistic. Your payments should flow regularly and on time. Before you commit to a debt settlement, go over the numbers multiple times and make sure you are providing for necessities. Don’t forget to count your yearly expenses. Monthly expenses like rent and utilities become habitual. It’s easy to forget that car insurance and car registrations can take a chunk of money out of your income at the most inconvenient time. Review your automatic debits. Go through your bank account and look at the automated deductions. Does the timing of your proposed payment date conflict with those debits?

Plan for emergencies. No matter how tight you are with money and how careful you are, emergencies happen. Simply driving a car to the grocery store puts you at risk for injury. Are you prepared to evacuate the island if there is a hurricane or tropical storm? Set aside emergency funds before you commit to your debt settlement plan. 

Make sure you count your entertainment expenses. Are you going to make your monthly payment to a collection agency if it’s your child’s birthday and you’re strapped for cash? Be realistic about your holiday and family spending. Netflix? Count it or cancel it. 

If you still have a credit card in good standing with available credit, save the card. It sounds contrary to the cheerleaders screaming “cut all the credit cards!” but a credit card in good standing can help with emergency funds, and it can help you reestablish your credit rating after your other debt has settled. 

Alternatives to Debt Settlement 

Debt settlement isn’t a great option if you don’t have the income or assets for lump sum payments. Also, your credit score will suffer, your wages could be garnished, and your credit cards could get cut off. Doesn’t sound like fun? Keep reading for debt alternatives. 

A simple description of debt relief alternatives:

Debt consolidation: a new loan to manage old debts

Debt management: managing old debt without a new loan 

Bankruptcy: no loan, no debt