Where do you go for help when you're in debt and live in Massachusetts? In this article, you will read about your debt relief options and learn some of the rules and regulations that apply in Massachusetts.
Massachusetts residents who need help eliminating credit card debt have a lot of choices. Banks, credit unions and other lenders; credit counseling agencies (nonprofit and for-profit) and debt settlement companies all work with consumers who are looking for debt relief.
There are five main options for solving credit card debt — debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement and bankruptcy.
Each program has plusses and minuses to consider. The different businesses and agencies have different approaches to debt relief, and which option is right for you will largely depend on your financial situation.
Here is an outline for each program and why it might work for you.
Debt management programs are not loans, but are offered by nonprofit credit counseling agencies, which work with creditors to lower interest rates on unsecured debt, usually credit cards. With the average interest rate on credit cards 16.7%, and many people paying as much as 20-25% or higher, that can be a big savings. For instance, if you owe $5,000 on credit cards and reduce the interest rate from 25% to 8%, you will save $228 a month, cutting a $333 payment to $105.
The major benefits of debt management are lower interest rates, one fixed monthly payment and a 3-5 year plan that greatly reduces or eliminates credit card debt. Counselors at nonprofit credit counseling agencies review your finances and help you calculate your income and expenses to determine what the monthly payment will be. Your credit score is not a factor for enrolling.
If you miss one payment, however, the interest rate increases, and does again if you miss a second payment. You are free to quit the program, but that means you will likely go back to paying the interest rate you were paying before enrolling.
» Where to find it? – Debt management plans are offered by nonprofit credit counseling agencies, who work with creditors to reduce interest rates. The program covers unsecured debt, like credit cards, but not secured debt, like houses or cars.
» Is it right for you? – Massachusetts residents with high-interest credit card debt on multiple cards can benefit from a debt management program. The fixed monthly payments are easier to manage than multiple credit card payments, there’s a set 3-5 year payoff window and, in the end, you save thousands on interest.
Debt consolidation loans will pay off higher-interest debt on multiple credit cards. They have a lot of benefits, including lower interest than credit cards, one fixed monthly payment and a set amount of time for which the loan is paid off. Debt consolidation loan interest rates are usually around 10-12%, depending on your credit score and whether you put up collateral, like your car or home. That’s compared to the 25% interest you may be paying to credit card companies.
The savings and efficiency can make debt consolidation loans a good deal. On the other hand, taking on the debt of the loan can be a pitfall if you continue to accumulate credit card debt.
Having a poor credit score also means that, if you still qualify, the interest rate and terms of the loan may not make it a good option to eliminate debt.
» Where to find it? – Banks, credit unions and online lenders offer debt consolidation loans. Shop around to get the best interest rate and repayment terms – it’s a competitive market and there are a lot of choices.
» Is it right for you? – People who have more high interest credit card debt than they’d like, but a good credit score (670 or higher) are the best candidates for a debt consolidation loan. Good credit puts you in a position to get an interest rate low enough to make it worthwhile.
Debt settlement is a way to pay off credit cards without having to pay the full balance. You pay a debt settlement company monthly, which goes into an escrow account until a settlement amount is accumulated (this can take 2-3 years). The company negotiates with your creditors for a lower balance, then pays them in a lump sum. While the negotiations are taking place, you stop paying your credit cards.
The downside is that debt settlement stays on your credit report for seven years, many credit card companies won’t negotiate with debt settlement companies, the company charges fees once the creditors are paid, and the IRS will tax the forgiven debt, considering it income.
While debt settlement companies promote the service by saying they’ll cut your credit card debt in half, their fees, as well as the late payment penalties and accumulated interest on the credit card accounts mean it’s not the savings it may seem.
» Where to find it? – Debt settlement is a service of for-profit debt settlement companies, which negotiate with credit card companies to lower the amount owed. Some credit card companies will accept the lower amounts because it’s a better option for them than the card-holder defaulting.
» Is it right for you? – Someone who is having trouble paying a large amount of credit card debt and facing bankruptcy may find this a better option. If you are one of more than two million Americans who have $50,000 or more in credit card debt, reducing that by half will save you money.
Nonprofit debt settlement was created in 2021 by nonprofit credit counseling agencies and is similar to the for-profit version in that the consumer pays 50%-60% of what they owe in credit card debt, or other unsecured debt. That’s the only thing the two have in common, though.
Creditors already have agreements with the nonprofit credit counseling agencies, so there’s no long negotiation. Those taking advantage of nonprofit debt settlement must have not made a payment on the cards in question for 180 days and have more than $1,000 in debt. The program takes 36 months, with zero interest, after which any balances left over are forgiven.
There are no extensions and all payments must be made on time or the program is canceled.
» Where to find it? – Since it’s a new program, only a few nonprofit credit counseling agencies offer it. The nonprofit credit counseling agencies are certified and accredited by the National Foundation for Credit Counseling and federal law requires they act in the client’s best interest. Search online for “nonprofit debt settlement” or “nonprofit credit card forgiveness” to find an agency that offers this solution.
» Is it right for you? – Consumers with overwhelming credit card debt and not enough income to pay them would benefit from nonprofit debt settlement. As long as they make the 36 monthly payments on time, their credit card debt will be settled.
Bankruptcy is an extreme option, but might be the best one for those who have no other way out of debt. It clears the decks debt-wise, while usually allowing you to keep your house and car.
Chapter 7 bankruptcy is the most common one for consumers. Non-exempt assets are sold by a trustee appointed by the court with the money used to pay as much of your unsecured debt as possible. There are exemptions that allow most who file to keep their house and car, as well as personal items associated with their job, and Social Security.
Chapter 13 bankruptcy restructures debt so you keep your assets while you pay down debt over a 3-5 year period. If you stick to the payment plan, which is through a court-appointed trustee, then any unsecured debt left afterwards is forgiven.
Bankruptcy comes with a price, including lowering your credit score as much as 100-200 points. It stays on your credit report for 7-10 years, making it hard to get a loan or credit to buy a house or car.
» Where to find it? – While you can file bankruptcy on your own, it’s a complicated process, and it’s worth it to hire a bankruptcy attorney to help. They can navigate the system and help protect you as much as possible.
» Is it right for you? – Massachusetts consumers who don’t have enough income to pay off their debt in five years may make bankruptcy the best debt-relief option. That said, less damaging options, like debt management, settlement or consolidation should be looked into first.
The statute of limitations for debt collection in Massachusetts is six years. That means that a creditor or debt collector has six years from the last payment on a debt to take a Massachusetts resident to court (even if the company is in a state that has a different statute of limitations). They can still attempt to collect the debt after that window has closed. If there’s already been a judgment against you in favor of the debt collector, however, they have 20 years to pursue it legally.
The federal Fair Debt Collection Practices Act sets down rules for when and how a creditor or debt collector can contact borrowers, as well as about false claims and more. In Massachusetts, state law spells out those protections and adds more specifics that further protect consumers from abuse and harassment from debt collectors. The state government has a webpage that lists all state laws, regulations, court process, specific case law and other resources related to debt collection.
The state is also very specific about what assets you can keep if a debt collector wins a judgment against you, including allowing you to keep enough money to heat your home.
Massachusetts is particularly protective of consumers when it comes to wage garnishment, which is more commonly referred to in the state as income execution. If you are employed, you keep either the first 85% of your earned income before taxes or the amount that is 50 times the minimum wage for a week, either federal or state, whichever is higher. Minimum wage in Massachusetts is $14.25 an hour (2022) compared to the federal $7.25 rate, so using the state’s wage, that protects $712.50 a week. Aside from exemptions for things like heating your home, housing, transportation and more, if you can prove you are setting aside money for a specific purpose it is also exempt. Alimony, child support and maintenance, criminal fines and taxes are not covered by these rules.
Massachusetts is an expensive state to live in – mortgages and rents are high, as are energy costs, and more. But it also has higher-than-average income, including a minimum wage of $14.25, nearly twice the federal wage.