California Debt Relief

California may be “The Golden State,” but millions of residents are short of treasure. Where can you go if you live in California and are in debt? In this article, you will read about debt relief options and learn some key rules and regulations that apply in the Not-Always-Golden State.

Choose Your Debt Amount

Debt Statistics in California







Debt Relief Programs in California

California led the nation in Chapter 7 bankruptcy filings in the first quarter of 2022, so there are a lot of people there who could use help dealing with their debt.

Relief is available from banks, credit unions, online lenders and debt-relief companies that are both nonprofit and for profit. All have specialists who can help solve financial dilemmas, especially credit card debt.

Five programs specifically address debt concerns: debt management, debt consolidation loans, debt settlement, nonprofit debt settlement and bankruptcy.

Debt Management

debt management program is a proven way to reduce credit card interest rates from as high as 30% to about 8%, which will make a huge difference in your monthly payment. The program can eliminate credit card debt for Californians in 3-5 years.

For example, if someone owes $5,000 in credit card debt at 25% interest, they would pay $105 in interest alone each month. Drop the interest rate to 8% and the interest payment is just $33 a month. That’s $72 a month difference that could go toward paying off the balance faster.

A debt management plan is not a loan. Credit score is not a factor in enrolling. Participants can opt out of the program at any time. However, on-time payments must be made every month. If they aren’t, the lender can withdraw the interest rate concessions made to the California consumer.

» Where to find it?

Plans are offered by nonprofit credit counseling agencies. They work with creditors to reduce interest rates and monthly payments to manageable levels. The program works with unsecured debts, like credit cards, but not secured debts like mortgages or car loans.

» Is it right for you?

Debt management can be a lifeline for anyone drowning in credit card debt. It can not only lower interest payments, it simplifies bills into one money payment and lets you chip away at the amount owed. In 3-5 years, you are free of debt and, hopefully, have learned the financial skills to stay that way.

Debt Consolidation Loans

Debt consolidation loans combine unsecured debt – primarily credit cards – into one loan. It has a lower interest rate than those you were paying on your various cards.

The rate will depend on your credit score and whether you are willing to put up collateral, like your house or car, to back the loan.

If you use such collateral, you’ll typically pay 10%-12% for a debt consolidation loan. That’s a lot better than the 25%-30% you might have been paying credit card companies.

Instead of having to keep track of a stack of bills, you’ll make one monthly payment. You don’t have to be a CPA to know that simplifying your life and saving money are good things. The key is qualifying for such a loan.

» Where to find it?

Most banks, credit unions and online lenders offer debt consolidation loans. Shop around for the lowest interest rates and best terms you can get.

» Consolidate your own debt

You can do a lot of the consolidating work a loan officer would do to find out exactly what your loan needs are. Then you can pursue the actual loan through the financial institutions or take other measures, like credit card balance transfers. This can be tricky and require some advice from nonprofit counseling agencies.

» Is a debt consolidation loan right for you?

If you have a good credit score (670 or higher) and the discipline to stop using credit cards, a debt consolidation loan is worth serious consideration. In California, the loans should have lower interest rates than credit cards. That’s what you’re after.

Debt Settlement

Debt settlement allows you to settle your debt for less than you owe. It’s usually in a lump-sum payment. Just like that, you’re out of debt!

Sounds good, right?

It’s not quite too good to be true, because it’s a legitimate option, but it has drawbacks. The biggest one is that it leaves a huge negative mark on your credit report – “did not pay full amount!” — that stays there for seven years.

You can negotiate with creditors, or you can hire a debt settlement company. Lenders are generally willing to deal if they fear they won’t get all their money back. Then you bargain back and forth and agree on a reduced payoff, but that negotiating could take 2-3 years.

In California, it might be as much as half off what you owe. But once you factor in late payments and other fees, it’s more likely you’ll pay about 20%-25% less.

The credit card company benefits by getting something, which always beats nothing. The consumer gets out of debt. But along with the credit score damage, the IRS considers any forgiven debt for more than $600 as income. You’ll have to pay taxes on that.

» Where to find it?

Debt settlement companies are for-profit ventures that specialize in haggling with lenders. The process can take 3-4 years if negotiations drag out. Credit card companies are not obligated to accept settlement offers.

» Is it right for you?

Any Californian who has debt so large it cannot be paid off could benefit from debt settlement. It also might be the last option before having to file bankruptcy.

Nonprofit Debt Settlement

Nonprofit debt settlement is similar to debt settlement, but it’s handled by a nonprofit credit counseling agency. The similarity is that consumers pay less than they owe. The difference is there is no negotiating. Creditors agree in advance to accept 50%-60% of what they are owed in 36 monthly installments.

If you miss a payment, the program is canceled. Californians can pay off the debt early, but the 36-month time frame cannot be extended.

The advantage of a nonprofit program is it’s certified by the National Foundation for Credit Counseling (NFCC). Federal law requires the agency to act in the best interest of the client.

» Where to find it?

This program began in California in 2021, so only a few nonprofit credit counseling agencies offer it, and only a few banks and credit card companies participate. You should search online using the term “nonprofit debt settlement in California” to find companies that offer this program.

» Is it right for you?

If you decide your credit card bills are too big to pay off, this is a viable way out. You won’t have to pay interest on the debt as long as you keep up the monthly payments. But the black mark — “full amount not paid.”—will stay on your credit report for seven years.


Bankruptcy is usually the last resort for Californians in debt, but it might be the best approach. There are two types of bankruptcy available to most consumers.

In Chapter 7 bankruptcy, some of your possessions are sold by a court-appointed trustee and the money is used to pay off debt. Assets like your home, car and personal items needed for work are usually exempt from being sold.

In Chapter 13 bankruptcy, you keep your assets in exchange for making a plan that includes regular payments to pay down the debt.

The consequences of bankruptcy are significant. Your credit score likely will plunge 100-200 points, making it extremely difficult to get credit in the future. Bankruptcy stays on your credit report for 7-10 years. You’ll have a harder time getting loans and will pay higher interest rates when you do.

Where to find it?

Bankruptcies are filed in federal court. You can do it yourself, but it’s not a process for novices. You’ll probably want to consult a bankruptcy attorney who can protect you as much as possible.

» Is it right for you?

Take a hard look at your income, expenses and total debt. If you can’t see a way to pay off your debt in five years, bankruptcy might be your best option. But consider nonprofit counseling, debt management, debt consolidation or debt settlement before taking that plunge.

Statute of Limitations in California

Creditors usually have four years to sue debtors for most debts in California. After that, the debt cannot be collected.

The clock starts running when you miss a payment. There are exceptions and details you need to be aware of, however.

Federal student loans and child support are not covered by statutes of limitation. And different types of collections have different time limits.

  • Written: Four years for most debts, like credit cards, auto loans and personal loans, because they arise from written contracts.
  • Oral: Two years for debts that are verbally agreed on.
  • On Account: Four years for debts that have been partially paid.
  • Judgments: 10 years for liens on a borrower’s property.

Some businesses may try to entice Californians to reopen old accounts through discounts and other offers. Be careful, because doing so will reactivate the account and restart the statute of limitations clock.

Debt Collection Laws in California

The state has its own version of the federal Fair Debt Collection Practices Act, which prohibits a debt collector from using false, deceptive or misleading representation about a debt.

It also regulates when collectors can call and requires them to stop calling if that’s what you request. The Rosenthal Fair Debt Collection Practices Act provides more protections, like allowing consumers to file complaints against government agencies, file lawsuits against collectors and to use violations of the law as leverage to settle debt.

More Debt Statistics in California

The total mortgage debt of Californians was $143.15 billion in 2020 and was projected to hit $172.9 billion by 2026. The surge in interest rates in 2022 might curtail the growth.

  • Student Loan Debt: Californians owe more in student loans than residents of all other states, but that’s simply due to its large population. The total is $141.8 billion, but the average debt of $37,804 ranks 13th in the U.S.
  • State Debt: The Golden State is in the red. California’s total liabilities are $362.87 billion, which ranks No. 5 in the U.S. To pay that off, each resident, including children, would get a bill for $33,000.
  • Identity Theft: California had 133,119 reported cases of identity theft in 2021. That worked out to 333 reports for per 100,000 residents, which ranked No. 19 in the U.S.
  • Credit Cards: California residents carried an average of 5.9 credit cards with average debt of $6,729 in 2021, a 31% increase from 2020. Lending Tree ranked that 14th in the nation and $160 higher than the national average.
  • Debt Collection: The state’s Debt Collection Licensing Act took effect Dec. 31, 2021. It mandates that debt collection agencies and collectors must apply for licenses to operate in the state. That gives the state a way to monitor and track unscrupulous collectors.
  • Credit Score: The average Californian’s score is 721, which is slightly higher than the national average of 716.

Resources for Californians

Debt is a problem for millions of Californians, but it’s not the only one. There are numerous federal, state and local organizations set up to assist veterans and civilians with life’s challenges.

Food Assistance

California’s Department of Social Services offers low-income residents food purchasing cards through the federal Supplemental Nutrition Assistance Program (SNAP). Applicants must complete a CalFresh form obtained online or a state welfare office.

They will have to provide proof of income, proof of household expenses, proof of child support and proof the medical support is for a household member who is disabled or over 60.

California also offers emergency food relief though its Emergency Food Assistance Program, and it offers a special program for pregnant women and newborn children.

Housing Assistance

The U.S. Department of Housing and Urban Development offers Section 8 funding assistance for low-income Californians who qualify. It’s not automatic, however, since there is a waiting list and more demand than supply.

Local public housing authorities also provide financial relief and guidance in applying for Section 8 vouchers. There are also homelessness prevention programs and rental assistance programs.

Affordable Healthcare

Medi-Cal offers federal and state-funded health insurance and health care services for low-income Californians. The medical debt relief is also available for workers who don’t get health coverage through their employers or have been laid off and lost health insurance.

Assistance for Veterans

There are about 1.6 million veterans in California, many of whom face unemployment and other hardships. Two primary agencies that assist those veterans.

Job placement, debt relief for veterans and other programs are also available through numerous private agencies like, Work for Warriors, Hiring Our Heroes and

Getting Debt Help

Being the nation’s most populous state, California has no shortage of residents who are struggling with debt. An inflationary economy is making life even harder.

Interest rates are likely to keep rising, which makes carrying debt even more expensive. Whether it’s debt consolidation, debt settlement, bankruptcy or another option, the time to address your financial problems is now.

It can begin easily enough, with a call to a nonprofit credit counseling agency. The counselors will examine your income and expenses, help you create an affordable budget and offer advice on the best solutions available for become debt free.

The solution they come up with likely will require hard work and sacrifice, but if you’re determined to get out of debt once and for all, it can be done.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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