The Golden State is a wonderful place to live but life can be tough for people, especially those on low incomes and those struggling with credit. People in California, CA, have more than $148,000 in debt. Although average California debt levels didn’t increase significantly between 2022 and 2023, credit card debt stands above $9,000 and almost half of Californian graduates have student debt, which averages $21,000.

If you add the cost of living and the stagnant incomes, California state residents have a hard time balancing their expenses with their incomes. Many Californians are feeling the pressure from skyrocketing housing prices as well, which impacts their mortgages and overall monthly expenses.

It’s no wonder, then, that many people in the state of California require debt relief solutions to become debt-free within a reasonable time and through specific achievable measures. Here are the most common means available to people looking for debt relief and for a better way to manage their financial challenges.

Debt Consolidation

Debt consolidation merges existing debts into one single loan. Borrowers pay one monthly payment toward a debt consolidation loan until they have repaid in total their debt to credit card companies.

Debt consolidation loans facilitate life because there is only one monthly payment to be made. Also, debt consolidation often comes with a more favorable interest rate, particularly compared with credit card rates. Credit cards often come with double-digit interest rates, but debt consolidation can convert credit card debt into a loan with lower interest rates overall.

Borrowers who have unsecured debts such as credit card debts, medical debt, health insurance debt, social security debt, and personal debt can consolidate them into one loan and simplify their debt management.

Always remember that debt relief options, including debt consolidation, do not provide total debt reduction. They do make repayment more manageable and can decrease the total interest paid over time, but you must still repay your debt in full.

Credit Counseling and Debt Management Plans

Credit counseling agencies in California may provide financial education and help create debt management plans (DMPs).

A Debt Management Plan organizes your debts into one monthly payment without taking on a new loan. The way a debt management program works is that a professional debt relief specialist analyzes your income and expenses and finds how much financial room you have to repay credit card debt or another type of debt. They then negotiate with your creditors for an extended repayment time frame that usually stretches from 3 to 5 years. Debt collectors often agree to a lower interest rate and fees can be waived, reducing the overall cost. The borrower pays a monthly installment to the counseling agency, which then distributes it to the creditors according to the DMP agreement.

Debt Settlement

Debt settlement is usually handled by a relief professional who negotiates with creditors to reduce the total debt amount. Debt settlement is a suitable option for people who are overwhelmed by the amount of debt they owe and have no realistic prospects of repaying this debt in full, based on their current incomes.

Debt settlement allows individuals to pay off their obligations with a lump sum that is less than the full balance. Debt settlement typically settles the debt with a 25%-50% reduction. The reduction depends on how much debt there is, the income, personal loans such as a student loan, marital status, credit scores, and other personal information criteria that a debt specialist will check.

Debt settlement can provide drastic relief because borrowers don’t repay the full amount of debt they owe. California debt settlement companies, including ClearOne, offer free consultation and services to negotiate on your behalf.

Here is how California debt settlement works to help you improve your credit.

Assess Financial Situation

The debt collector will go through your finances, total debt, types of unsecured debt, credit score, income, and expenses. They will assess if debt settlement or another option for debt is a solution to your financial situation. If so, they will start the process.

Stop Using your Credit Cards

It is important that you do not use your credit cards during the course of the debt settlement program. While you are in the program, you will deposit funds into a savings account each month for the purpose of accumulating enough money for settlements.

Negotiate with Creditors

The California debt settlement specialist negotiates with creditors for a reduced pay-off credit amount. Creditors often agree to such terms because the alternative is that they won’t get anything at all. Therefore, they agree to a settlement amount in exchange for debt forgiveness.

Reach Settlement Agreements

Following an agreement with creditors, you get written documentation that details the settled amounts and terms. The California debt relief counselor will make sure the terms and conditions are clear.

Make Settlement Payments

The money accrued in the savings account is used to pay the agreed-upon payment to creditors according to the settlement agreements.

Monitor Credit Reports

Once the debt is settled, the credit reports should reflect it and report settled debts as "settled" or "paid in full."

Rebuild Credit

A credit score takes a hit with debt settlement. It’s now time to rebuild it with a good financial management program, careful financial planning, and timely bill payments. If you still have credit cards, use them wisely and maintain a low credit utilization ratio.

Balance Transfer Credit Cards

If you have good credit but are feeling overwhelmed by debt payments, you could transfer your high-interest balance debts to a new credit card. Banks often offer 0% APR on new credit cards for the first few months. Once you transfer your balance, you benefit from this interest-free period which gives you breathing space to repay your debts with more favorable terms.

Bankruptcy

Sometimes, debt consolidation or debt settlement is simply not enough. The only other option is to file for bankruptcy. While it sounds stressful to apply for bankruptcy, it is a way to start with a clean slate. Although it can seriously damage your credit score and stay on your credit records for 7 years, bankruptcy can help you overcome business debt that is simply unmanageable.

Filing for Chapter 7, or liquidation bankruptcy, involves selling non-exempt assets to pay off creditors, often leading to debt discharge.

Chapter 13, or reorganization bankruptcy, designs a repayment plan over three to five years while keeping most assets. This type of bankruptcy has pros and cons. While it offers access to a fresh start, it has long-term impacts on credit and should be considered a last resort.

Choosing the Right Debt Relief Option in California

Are your average credit card balances becoming overwhelming? If you are a resident of California and you face increasing debt, you are hardly alone — and there are several debt relief programs available to help you with your financial hardship.

ClearOne is helping Californians assess their credit report and find the best debt relief options. The debt-for-less relief solution that best fits your needs depends on your finances, the amount of debt you have accumulated, how you see yourself in the long term, your income prospects, and more.

At ClearOne, our professional debt relief experts can offer professional advice for your situation and suggest debt solutions fitted to your needs.

Debt settlement is a debt relief assistance that is particularly suited to people who have too much debt in California that can’t be met by their current incomes. Our ClearOne Debt Specialists can help you explore your options, explain how debt settlement works, support you with your credit repair, and help you move toward a debt-free future.

Contact us today and get your free consultation with our expert debt relief specialists. Get help now and take back control of your finances!