Debt Relief in Pennsylvania

Pennsylvania Debt Relief

The average household credit card debt in Pennsylvania is around $5,840, a little lower than the nation’s average of $6,270. Credit card debt is the most common type of debt in Pennsylvania, followed by mortgages and student loans.

Although PA residents have less credit card debt than the average American, the cost of living in the Keystone State’s cost of living is rapidly rising. Home prices increased by 14.3% in the last year. As the cost of living continues to rise, residents must prioritize spending on essential expenses like housing, food, and transportation. Couple this with Pennsylvania’s unemployment rate of 4.8%, far above the national average, and paying off debt can quickly become overwhelming.

If you have found yourself unable to keep up with your debt payments, it’s time to explore your options. Debt relief can be tailored to your specific needs, including meeting with a credit counselor to review your finances, or starting a debt consolidation program that helps make your monthly payments more manageable.

Debt Relief Options in Pennsylvania

Consider Starting with Credit Counseling

Credit counseling is an opportunity to sit down with a certified third-party individual and comb through your finances. Your counselor may offer certain ways to revise your budget to avoid increasing your debt. They can also recommend debt relief programs that make the most sense for your finances. Having a complete picture of your finances is key to beginning your journey to debt-free living.

Paying Debt Off on Your Own

The short answer is yes, you can pay down your debt without outside help, but it will take diligence and self-discipline. This is most easily done with credit card debt. If you have multiple types of debt, this may not be the best option for you. You may want to consider getting credit counseling before deciding to go this route. A credit counseling agency can go through the following numbers with you and help decide which is the best option for you.

To start, you will need to take an in-depth look at your finances. Add up your total monthly expenses, including things such as rent, gas, groceries, and bills. This will help you see how much extra money you can comfortably put towards your credit card payments each month. Then, add up all of your minimum monthly payments and compare the number to how much you have left over from your total monthly expenses.

Your goal should be that the number left over from monthly expenses is larger than your minimum credit card payments combined, which you leave you with additional money to place towards your debts. If you find that the left-over number is smaller than your minimum credit card payments, you will need to cut back on the budget in certain areas, such as shopping for more affordable groceries or carpooling when possible.

There tend to be two methods of putting the excess money towards your credit card payments.

1. Pay Off of the Smallest Debt First
   • If you have more than three cards and aren’t too worried about high interest rates, this may be the best option for you. Pay all of your minimum monthly credit card payments and add any excess money to the card with the smallest balance. Once you have the smallest balance paid all the way to zero, roll over the entirety that you were paying on that card to the next smallest card. You’ll shrink your debts one by one and will be able to make bigger payments to the higher balance cards as you knock each one down to zero.
2. Pay off the Debt with the Highest Interest Rate First
   • If you have less than three cards and high interest rates that seem to undo all the progress you make each month, this may be the best option for you. Just like the previous option, you will pay all of your minimum monthly payments but add your excess funds to the card with the highest interest rate first. This saves you money in the long run as you’re giving far less in interest over time.

Debt Settlement

Typically, debt settlement is offered by for-profit companies. The strategies used can cause significant harm to your credit score, such as telling you to stop all payments until a settlement is reached. There is no guarantee that your debt will be entirely settled, and you could be left with a poor payment history on top of debt. Additionally, you pay a monthly fee on top of the portion the company takes out of the savings they get you.

Although this debt relief method is advertised as effective and inexpensive, this tends not to be the case. Research shows that companies who practice debt settlement on a client’s behalf are only successful 10% of the time.

If this method is successful, you pay thousands of dollars for the service, you reach some sort of settlement while your credit score gets dinged month after month, and after all the fees you still save money. If the service fails, you pay your monthly fee with no return, your credit score suffers, and you are still left in debt. Some creditors have chosen to sue over the money that was unpaid during debt settlement negotiations.

Debt Consolidation Loans

For this debt relief method, you apply for a separate loan that covers your debt. In order to receive the loan, you must meet the specific qualifications of your lender of choice. This typically includes a good credit score, so this option may not be available to you depending on your circumstances. 

Even if you qualify, there is no guarantee that the loan will cover the entire amount of your debt. Depending on the qualifications and requirements of the lender, you could be subject to high interest rates and a longer repayment term. Credit counseling is most often not included in this option, so unless you seek it out prior to applying for the loan, you may not have the tools necessary to keep up with payments.  In the end, this solution can take far longer to pay off your debt and may not lead you to debt-free living.

Bankruptcy

Although bankruptcy is often described as a clean slate, this method of debt relief has long-lasting negative impacts, particularly on your credit score. Bankruptcy remains on your credit report for 7-10 years, affecting your everyday life. If this is coupled with poor spending habits, there is a high chance that you could find yourself filing for bankruptcy again in the future.

Bankruptcy should be treated as an absolute last resort, only considered after you’ve exhausted your other debt relief options.

Debt Management Plans (DMP)

Only offered by non-profit companies, a debt management plan combines your debts into a single, manageable monthly payment. First, an account will be created to keep track of all the balances owed to your current creditors. Your non-profit credit counseling agency will negotiate with creditors to reduce interest rates and settle on monthly payments that can work with your finances. Once these are set, the total is withdrawn from your bank account as one monthly payment. The credit counseling company will then disburse those funds to your creditors on your behalf.

The requirements to enroll in a DMP are far less strict than those of a debt consolidation loan, and even those with poor credit can get started with a DMP because your credit score is not a factor for qualifying for a debt management plan.

When you’ve got more debt than you can keep up with, and you’re having a hard time making your monthly payments, a debt management plan can offer relief.

Pennsylvania Debt Relief FAQs