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Arizona Personal Debt Relief: Options To Get Back on Track

Feeling Overwhelmed by Debt in Arizona? You’re Not Alone

If you’re drowning in debt and feeling stressed out, you’re definitely not the only one. Tons of people in Arizona are in the same boat. In fact, according to credit reporting agency Experian, the average credit card balance in Arizona was $5,897 in 2021. Yikes!

But here’s the thing – there is hope. You’ve got options to get your debt under control and start fresh. In this article, we’ll break down some of the best debt relief strategies for Arizonans. By the end, you’ll have a solid game plan to tackle that debt head on.

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First up, let’s talk about the elephant in the room…

What Exactly is Debt Relief?

Debt relief is basically finding a solution to get out of debt when you’re struggling to pay what you owe. It’s a broad term that covers a bunch of different strategies. The right method for you depends on your unique sitch.

Generally, debt relief aims to do one of the following:

  • Reduce the total amount you owe
  • Lower your interest rates
  • Extend your repayment terms to make monthly payments more affordable

Make sense? Cool, let’s keep cruising and check out some of the most popular debt relief options in AZ.

Debt Consolidation Loans

One common approach is consolidating your debt by taking out a new loan to pay off all your existing debts. Ideally, this consolidation loan has a lower interest rate than what you were paying before, so you save money in the long run.

How it works:

  1. You apply for a personal loan from a bank, credit union, or online lender
  2. If approved, you use the funds from the new loan to pay off your other debts
  3. You’re left with just one monthly payment to your new lender, often with a lower interest rate

Pros of Debt Consolidation Loans:

  • Simplifies your debt payments into a single monthly bill
  • Can score you a lower interest rate, saving you money over time
  • Fixed monthly payments make budgeting easier

Cons of Debt Consolidation Loans:

  • You generally need decent credit to qualify for the best rates
  • Extending your repayment term means you could pay more interest in the long run
  • Without a plan to curb overspending, you could end up in even more debt

Balance Transfer Credit Cards

Balance transfer credit cards let you move high-interest credit card debt to a new card with a lower (or even 0%) promotional APR for a limited time. The goal is to pay down your balance interest-free during the promo period.

How balance transfers work:

  1. You open a new credit card with a 0% or low APR balance transfer offer
  2. You transfer your existing credit card balances to the new card
  3. You focus on paying off your debt before the promotional rate expires (usually 12-18 months)

Pros of Balance Transfer Cards:

  • Can save a ton on interest if you pay off your balance during the 0% promo period
  • Lets you focus on paying down the principal rather than fighting high interest charges
  • Many balance transfer cards have no annual fee

Cons of Balance Transfer Cards:

  • Requires good to excellent credit to qualify for the best offers
  • You may pay a balance transfer fee (usually 3-5% of the amount transferred)
  • High interest rates snap back if you don’t pay off the balance by the end of the promo
  • Opening a new card can ding your credit score temporarily

Debt Management Plans

If your credit isn’t great, a debt management plan (DMP) through a non-profit credit counseling agency could be a good alternative to consolidation.

With a DMP, you work with a certified credit counselor to create a structured repayment plan. The counselor may be able to negotiate lower interest rates and fees with your creditors on your behalf. You then make one monthly payment to the credit counseling agency, which distributes the funds to your creditors.

How debt management plans work:

  1. You meet with a credit counselor to review your debts and budget
  2. The counselor creates a DMP proposal and reaches out to your creditors to negotiate
  3. If your creditors agree to the terms, you start making payments to the credit counseling agency
  4. Your counselor continues to work with your creditors and support you throughout the program

Pros of Debt Management Plans:

  • Can help you secure lower interest rates and waived fees
  • Consolidates payments to multiple creditors into one monthly payment
  • Provides professional guidance and support to keep you on track
  • Credit counseling is often low-cost or free, and DMPs have minimal setup fees

Cons of Debt Management Plans:

  • Most DMPs take 3-5 years to complete
  • Your creditors may close your accounts or block you from opening new credit while on a DMP
  • Missing a payment can get you kicked out of the program
  • Debts like student loans and mortgages usually aren’t eligible for DMPs

Debt Settlement

Debt settlement, also known as debt resolution or debt relief, involves negotiating with your creditors to settle your debts for less than you actually owe.

You (or typically a debt settlement company) offer your creditors a lump sum payment that’s a portion of your outstanding balance. If they accept, your debts are considered resolved.

How debt settlement works:

  1. You or a debt settlement company reach out to your creditors to propose a settlement
  2. While waiting for a response, you transfer funds into a dedicated savings account for the eventual settlement
  3. If your creditors agree, you pay the agreed upon amount using the funds in your savings account
  4. Once the debt is settled, the remaining balance is discharged and you’re no longer liable for it

Pros of Debt Settlement:

  • Can lead to major savings and eliminate your debt quicker than making minimum payments
  • Debts settled for less than what you owe aren’t taxed as income in Arizona
  • Some creditors report settled debts as “paid in full” rather than “settled”

Cons of Debt Settlement:

  • Creditors aren’t obligated to agree to a settlement, and many won’t negotiate unless you’re already several months behind
  • Settled debts can remain on your credit report for up to 7 years as a negative mark
  • You may owe taxes on the forgiven debt amount
  • Debt settlement companies often charge steep fees (typically a percentage of your original debt)

Bankruptcy

If your debt is truly overwhelming and you see no way to feasibly pay it off, bankruptcy could offer a second chance. It’s a legal process that can discharge some or all of your debts, but it has serious consequences.

Arizona has two main types of consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7 liquidates your assets to pay off creditors and discharges remaining debts, while Chapter 13 sets up a 3-5 year repayment plan to pay off or discharge what you owe.

How personal bankruptcy works:

  1. You complete mandatory pre-bankruptcy credit counseling
  2. You file a bankruptcy petition and provide documentation of your debts, assets, income and expenses
  3. For Chapter 7, a bankruptcy trustee sells your non-exempt assets and uses the proceeds to repay creditors; remaining debts are discharged
  4. For Chapter 13, the court approves a 3-5 year repayment plan based on your income; some unsecured debts may be discharged once the plan is completed

Pros of Bankruptcy:

  • Chapter 7 can wipe out most unsecured debts like credit card debt and medical bills
  • Chapter 13 can stop foreclosure and let you catch up on missed mortgage payments
  • Automatic stay stops creditor collection actions like lawsuits and wage garnishment
  • Arizona has generous bankruptcy exemptions to protect essential property

Cons of Bankruptcy:

  • Remains on your credit report for 7-10 years, making it hard to access new credit
  • You may have to give up non-exempt assets like vacation homes, expensive cars, jewelry, etc.
  • Some debts like student loans, alimony and child support aren’t dischargeable
  • Requires filing and attorney fees

Which Debt Relief Option is Right for You?

So now that we’ve covered the main debt relief strategies, you’re probably wondering which one to choose. Honestly, it depends on your specific situation.

Here are some general guidelines:

  • If you have good credit and can pay off your debt within 1-2 years, a balance transfer card or debt consolidation loan is probably your best bet.
  • If your debt is more than 40% of your income and you’ve already fallen behind on payments, debt settlement or bankruptcy may make more sense.
  • If you need more time and support to pay off your debts but want to avoid the credit damage of debt settlement or bankruptcy, a debt management plan could be a good middle ground.

Still not sure? Here’s what I recommend:

  1. Crunch the numbers using a debt repayment calculator or budget spreadsheet to figure out how much you can realistically pay each month.
  2. Get a free credit report to check where you stand.
  3. Make an appointment with a reputable non-profit credit counseling agency like Take Charge America. They’ll review your situation for free and lay out your best options.

The bottom line? Dealing with overwhelming debt is stressful as heck, but you’ve got this. By educating yourself on your debt relief options and reaching out for help, you’re already taking positive steps forward.

The Most Important Thing is Taking Action

At the end of the day, the worst thing you can do when you’re drowning in debt is nothing at all. Burying your head in the sand and avoiding your creditors will only make things worse. Trust me, I’ve been there!

The sooner you face your debt head-on and make a plan, the sooner you’ll be on the path to financial freedom. It won’t be easy, but it is so worth it. Future you will be grateful you took control and turned things around!

Learn More About Debt Relief

Want to learn more about getting out of debt and staying that way? Check out these helpful resources:

You’ve got this, Arizona! Here’s to getting out of debt and on with your best life. If you want expert guidance exploring your debt relief options, call the friendly folks at Federal Lawyers today at 212-210-1851. We’re here to help!

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