Excessive debt? Take this quiz to find the best solution for you.
If you're struggling with debt in Texas, the good news is you have options.
The bad news is you don't have unlimited options.
So, here are what I believe are the top 5 options for debt relief in Texas and the pros and cons of each:
The Top 5 Debt Relief Options for Texas Residents
This is what you have to choose from:
1. Debt Consolidation
Debt consolidation is when you borrow money to pay off your other debts. Basically, you're getting a low-interest loan to pay off high-interest debt(s).
2. Debt Settlement
Debt settlement is where you negotiate a mutually acceptable settlement amount for less than full balance with a creditor or collection agency. Once you pay the settlement amount, the debt is eliminated and no further balance is due.
3. Consumer Credit Counseling Service (CCCS)
A CCCS is a non-profit organization offering financial counseling, education and debt repayment services. When you're enrolled in a CCCS, you make one monthly payment to the CCCS, then they disburse those funds to your creditors. The CCCS can often lower your interest rates and prevent collection calls, but no debt relief is granted.
4. Bankruptcy
There are 2 types of personal bankruptcy — Chapter 7 and Chapter 13. If you qualify for Chapter 7, it might be possible to wipe out all your debt and get a fresh start. If you don't qualify for Chapter 7, you might be eligible for Chapter 13 where you could get partial debt relief, protection from creditors and extended time to pay off your debt(s).
5. Do Nothing
While not very practical, doing nothing about your credit card debt could work in certain situations. If you're unemployed, retired or have no assets creditors could go after, you might be just fine with doing nothing. As the saying goes, "You can't squeeze blood from a turnip."
Pros And Cons Of Each Option
Debt Consolidation:
- PROS: Simplifies your monthly payments by lumping all of your debts into one bill. A debt consolidation loan can lower your interest rate on your overall debt, saving you money in the long run.
- CONS: One problem with getting a debt consolidation loan is collateral. In order to qualify for a loan you need to provide collateral (house, property, investments, etc) to get the loan and many people don’t have collateral. Another problem is it can be difficult to qualify for a debt consolidation loan if your credit is already poor.
Debt Settlement:
- PROS: Debt relief (sometimes substantial debt relief) without bankruptcy. If you have access to sufficient funds, you can retire your credit card debt in a matter of months, not years.
- CONS: You will receive collection calls and letters during the debt settlement process, so you have to have a thick skin. Also, one or more of your creditors may not cooperate and decide to sue you. Although litigation is possible, it is very rare. After 15 years working in this industry, the litigation rate for our clients is less than 2%.
Consumer Credit Counseling Service (CCCS):
- PROS: Credit counselors can negotiate with your creditors to lower your interest rates and/or waive late fees. You can make one monthly payment to the CCCS, then they disburse those funds proportionately to your creditors.
- CONS: The CCCS will require that you close all credit card accounts you enroll in their program, which could be problematic if you still need a credit card for travel or work. In addition, if you need to apply for credit during the time you're working with a CCCS, your application might get rejected if a lender sees you're enrolled in a CCCS program.
Bankruptcy:
- PROS: If you qualify, Chapter 7 bankruptcy can wipe out all debts and give you a fresh start. If you don't qualify for Chapter 7, Chapter 13 bankruptcy can protect you from creditors, give you partial debt relief and/or up to 5 years to pay off debts.
- CONS: Bankruptcy is a matter of public record for anyone to see, including future employers. Bankruptcy could be an issue if your job requires a background check or security clearance. Also, bankruptcy can stay on your credit report for up to 10 years.
Do Nothing:
- PROS: Doing nothing costs nothing. No investment of time, effort or money is required.
- CONS: Doing nothing is often just a temporary solution, because creditors can always appear at a later date once you’ve found a job or have assets. If a creditor sues you and you don't respond, they'll win a judgment by default. Once a creditor has a judgment against you, they can they slap a lien on your house or other property. In some states, judgments can remain valid for up to 20 years.
Top FAQs Regarding Texas Debt Relief
What is the Texas statute of limitations on credit card debt?
In Texas, the statute of limitations on credit card debt is 4 years. This means your creditors have up to 4 years to sue you after your account goes delinquent.
If a creditor sues you after the 4 year statute of limitations has passed, it is your responsibility to prove the 4 year statute has passed. Simply saying your last payment was more than 4 years ago is not enough. You need to demonstrate when you made your last payment, typically with an old credit card statement or credit report, to dismiss the lawsuit.
IMPORTANT NOTE # 1: Making even a single payment on a past due debt resets the statute of limitations clock back to zero.
IMPORTANT NOTE # 2: Creditors and collection agencies can still send you calls and letters about past dues debts after the statute of limitations has expired. They can even file a lawsuit against you after the statute of limitations has expired. But you can have the lawsuit dismissed if you can prove that the statute of limitations has expired.
Do medical bills affect your credit in Texas?
It can. However, medical debt on your credit report may soon disappear. Starting in the summer of 2022, the 3 major credit reporting agencies (Equifax, Experian & TransUnion) will begin removing derogatory items related to medical debt from millions of consumers' credit reports. Specifically:
- Medical debt that's been paid will be removed from your credit report.
- Medical debt under $500 in collection won't be reported.
- Medical debt in collections currently gets reported at 6 months past due. That time period is increasing to 12 months.
Source: CNBC
What are the credit card collection laws in Texas?
Pursuant to the Texas Debt Collection Act, debt collectors may not use:
- Abusive collection tactics (i.e. use profanity, threaten violence or arrest, harass via the telephone, etc).
- Fraudulent collection tactics (i.e. using false identification, sending fake documents that appear to be from the Court, etc)
- Wage garnishment to collect consumer debt like credit cards and medical bills. However, creditors can garnish wages for payment of child support, student loans and back taxes.
For more details about debt collection laws in Texas and your rights as a Texas resident, please visit the TX Attorney General website.
How To Choose The Best Debt Relief Option
No one ever thinks it will happen to them. But unless you win the lottery, your debt isn't magically going away.
That means you're probably going to have to do something to remedy your financial predicament.
Over the years I've had thousands of 1-on-1 consultations helping people in financial distress decide on their best course of action.
A good place to start is decide on what your ultimate objective, then rule in or rule out potential solutions accordingly.
For example, if you desperately need debt relief, then you can rule out "consumer credit counseling" and "doing nothing" and instead focus on "bankruptcy" or "debt settlement".
Unfortunately the decision making process is not this simple and there's a lot of factors to consider. To help you with your decision, here are the 3 best resources I know of:
- Debt Relief Assessment. Take this quiz to determine what might be your best solution if you're struggling with excessive debt.
- Is Debt Settlement The Right Choice For You? This is an excellent, detailed guide that helps you determine if debt settlement is the right option for you.
- 1-on-1 Phone Consultation. If you want an answer quickly, schedule a phone consultation with our office. Consultations are free and there is no obligation. You won't get a sales pitch. Just honest, straightforward answers to help you solve your debt situation.
Conclusion
When it comes to debt relief, there are a number of options available to Texas residents. In this article, we've outlined the pros and cons of the top 5 options, as well as some key FAQs that apply specifically to Texans. Ultimately, the best option for you will depend on your individual circumstances.
If you're not sure which option is right for you, we recommend speaking with a debt relief specialist who can provide an honest assessment of your situation and provide custom feedback and recommendations.
