California Debt Relief Guide 2023


Are you living in California and struggling with high-interest debt? This article explores multiple debt relief options, including credit counseling, debt consolidation loans, debt settlement, and bankruptcy, and offers advice for DIY debt relief.

Credit card debt is one of the most crippling sources of high-interest debt that many people face. In fact, Americans collectively have about $1 trillion in total credit card debt, according to the Federal Reserve Bank of New York. California debt statistics place rank the state at number 15 in the country with $7,758 in average credit card debt, just slightly over the national average of $7,279 according to a recent study.

Today, we’ll discuss California residents’ debt relief options, the pros and cons of the various plans available, whether you qualify or not, and what you should know about credit counseling, debt consolidation loans, and debt settlement companies.

California debt relief strategies

If you find yourself struggling with a mountain of debt, it can feel overwhelming. But you aren’t alone and there are plenty of debt relief options to choose from, one of which is sure to meet your financial needs.

Get credit counseling

The first and perhaps best piece of advice you should take is to call or visit a credit counseling agency today. Most are non-profit agencies that offer free services to help you manage your finances and get out of debt. Among other things, a credit counseling agency will:

  • Help you create a monthly budget personalized for your specific circumstances
  • Give you a free debt analysis by reviewing your credit report
  • Give you recommendations for an action plan, including debt-relief solutions and explanations of their pros and cons

Credit counseling not only helps you with your immediate debt situation and setting up a household budget. It can also show you how to achieve long-term financial goals such as buying a house, saving for retirement, or setting up an emergency fund.

Other benefits to credit counseling include learning how to stop aggressive debt collectors, avoiding wage garnishment, and tips on how to stick to your household budget, among other useful advice.

To find a non-profit credit counseling company near you, take a look at some of the options below.

IMPORTANT! It can be embarrassing to talk about the intimate details of your finances, but debt problems are incredibly common and can be fixed. Credit counselors have experience dealing with exactly the types of issues you’re going through and can offer you real-world solutions to help you get past crushing debt.

Debt management program

A debt management solution doesn’t reduce your debt, but creditors who work with credit counseling agencies will agree to give you a lower interest rate compared to credit card rates (which average around 20% as of March 2023). In return for lowering your rate — as low as 8% in some cases — you agree to pay off the balance within three to five years, depending on the size of the debt.

It’s important to be aware that you must not miss any of your monthly payments. If you miss even a single monthly payment, your interest rate will shoot back up and you’ll be dropped from the program. But as long as you continue to make on-time regular payments, you could be debt-free within a few years.

“The main downside of this debt relief method is that your current credit card accounts will get closed, which can damage your credit score. (The debt management plan itself won’t harm it.) In addition, you won’t be able to open new accounts until you complete the plan, which can take years, depending on how much you owe,” says Leslie Tayne, founder and head attorney at Tayne Law Group.

Pro Tip

“The debt management plan is the best for your credit report. Although DMP can affect your credit score, the impact is temporary and less severe than if you were to default on your debts or go for debt settlement,” says Lyle Solomon, Principal Attorney at Oak View Law Group.

California debt consolidation loans

A debt consolidation loan is a debt relief option where you take out a single loan to pay off multiple unsecured debts. For example, you might use it to pay off two credit cards and a student loan. This way you only have one monthly payment to deal with rather than three.

Consolidation loans also have the advantage of (usually) offering much lower interest rates than you can get with credit cards. On the other hand, because a debt consolidation loan is another type of unsecured debt, you’ll need a pretty good credit score to qualify, which may put this option out of reach for some people.

California debt settlement

Debt settlement programs are offered by for-profit debt settlement companies that negotiate on your behalf to reduce the amount of your debt by as much as 50%. A debt settlement program differs from other debt relief plans in that you settle your debt for less than you owe, and a debt settlement company will charge a lot more for their services. In addition, it will hurt your credit score because you failed to repay the entire amount of the debt.

“Like the debt management plan, you send the company money monthly. But instead of paying your creditors, the company stashes the funds in an escrow account. Once there’s a significant sum saved, the company will attempt to negotiate a settlement with one of your creditors for less than the full balance owed,” Tayne explains.

It’s also important to be aware of other potential drawbacks of a debt settlement, says Tayne. “In the meantime, your creditors will likely still attempt to collect on the debt. You could even get sued and have your wages garnished. Plus, there’s no guarantee that the company will successfully negotiate a reduced balance. Even if they do, you’ll have to pay the firm for its service and live with the damage to your credit.”

To get a better idea of what debt settlement companies can offer, take a look at some of your options below.

Pro Tip

“If you do hire someone be sure they only charge a settlement fee after they settle a debt for you, and that they build a plan you can succeed with,” advises Michael Bovee, founder and president at Consumer Recovery Network.

“Be sure to ask them how they are going to organize your settlements in order to limit your risk of being sued. If they do not have an answer for that, they are not someone I would trust to know how to best assist me.”

Credit card debt forgiveness program

You can think of a credit card debt forgiveness program as sort of a combination debt settlement, debt management, and debt consolidation program. It’s offered by some non-profit credit counseling agencies, and it’s a much less expensive option than a debt settlement program. However, you must meet some requirements in order to qualify.

  • The creditor must be on the list of card companies, banks, law offices, or debt collection agencies that agreed to participate in the program.
  • The account must be in delinquent status, meaning no payments have been made in 120 days or more.
  • The balance on the account must be at least $1,000.
  • The balance must be paid off within three years.

The National Foundation for Credit Counseling (NFCC) developed this debt relief program, which could release you from up to 50% of your total debt in exchange for making regular monthly payments for a maximum of 36 months. On the upside, there’s no penalty for paying it off earlier. Keep in mind it’s a strict plan, though — if you miss even one monthly payment, you’ll likely be dropped from the program.

To qualify, you’ll first need to meet with a counselor from a participating agency who will go over all of your financial data, including your monthly income, bills, and expenses. That’s in addition to pulling your credit report to verify the extent of your hardship.

IMPORTANT! This plan isn’t great for your credit rating because, like debt settlement programs, you won’t be paying your debts in full. Once you pay it off, it’ll be listed on your account as “settled.” Also, keep in mind that any debts forgiven may be subject to income tax if you save more than $600.

Harness your home’s equity

If you’re a homeowner with some equity built up in your home, you might be able to take out a home equity loan or get a home equity line of credit (HELOC) to pay off your debts. Many people use these types of loans to consolidate their debts. That said, keep in mind that your home is used as collateral, so if you can’t pay it back you risk foreclosure. You’ll also need a decent credit score to qualify for the loan.

Instead of a loan, however, you might want to look into a home equity investment, also known as a shared equity agreement. A home equity investment isn’t technically a loan, so qualification requirements are less strict, but you can get a lump sum of cash in exchange for selling some of the future equity in your home.


Most people want to avoid declaring bankruptcy. However, if you have no other way to make your credit card payments or pay for outstanding medical expenses, you may not have another choice. If your income is less than the median income for California residents, you can qualify for Chapter 7; if you make more than that, you’ll have to file Chapter 13.

It’s important to note that declaring bankruptcy will stay on your credit reports for seven to 10 years. This means you probably won’t qualify for a home or car loan during that time unless you have someone cosign with you.

It’s also important to note that bankruptcy doesn’t discharge all debts, such as back taxes, student loans, or alimony and child support, so it may not be feasible for some people. Finally, bankruptcy is a matter of public record, which could be problematic if, say, you want to rent an apartment after you’ve filed.

DIY debt relief for California residents

If you want to get out of debt in California and feel you can tackle your debts on your own, good for you! This is the best way to keep your credit intact (and even improve it) while gaining freedom from your unsecured debt. This is a good solution if you’re still able to make your credit card payments, have a steady income, and don’t want to get further into debt.

“You can do it yourself by creating a budget, keeping paying off debt as your primary focus. The debt avalanche and snowball approaches to debt management are do-it-yourself options,” suggests Solomon.

The avalanche method and snowball methods are two solid approaches you can take to handle your debt burden without outside assistance. However, it still doesn’t hurt to visit a credit counseling agency for some guidance on creating a workable budget and tips on how to better manage your finances in the future. Whichever method you choose, just be sure to stop using your cards and don’t take on any more debt if you can possibly avoid it.

Debt avalanche

Some consider the avalanche method the “best” way to pay your debts because it saves you the most money in the long run. With this approach, you focus on your debts based on their interest rates, tackling the one with the highest rate first.

Let’s say you have a student loan at 7% interest, one credit card at 16% interest, and a third card where you’re paying 20% interest. The avalanche method suggests you begin with the 20% card while only making the minimum monthly payment on the other two debts.

For example, if your budget for debt payments is $1,000 a month, and the minimum payments for your other debts equal $400 ($200 apiece), then you take the remaining $600 and put it towards the highest interest debt. As soon as you’ve paid that one off, you move on to the next one, keeping your budget the same. That means you now have $800 a month to pay on the next debt, and so on until you’re debt-free.

Related reading: For a closer look at deciding which credit card you should pay off first, take a look at our article on just that.

Debt snowball

The snowball approach is similar, but it involves targeting your smallest debt first, regardless of the interest rate. You still make the minimum monthly payments on your other debts, but you focus the majority of your debt budget on the smallest debt first.

Once that one is paid off, you move on to the next one until you’re left with your largest debt. Since you’re now using your full debt repayment budget, the largest debt will go that much quicker.

Pro Tip

Some people find this method more satisfying because you might be able to knock out your first debt relatively quickly, which can psychologically motivate you to keep going. There’s no right or wrong way really, it’s whatever method will keep you on track. Just keep in mind that you will save more in interest with the avalanche method.


What is the new California debt settlement law?

As of October 2021, California passed AB 1405, the California Fair Debt Settlement Practices Act. This sets requirements and prohibitions for debt settlement companies and payment processors. The law, meant to counteract unfair practices from debt settlement companies, went into effect on January 1, 2022.

Are debt relief programs worth it?

Aside from a do-it-yourself approach to paying down your debts, there are some downsides to most debt-relief programs. Most notable is the damage to your credit score, but you may also end up having to pay substantial fees to get out of debt.

Having said that, those are obstacles you just might need to contend with if you want to get out from under your debt once and for all. Plus, your scores will recover eventually, and getting out of debt will ultimately change the direction of your financial future. The freedom to pursue other goals, like starting your own business, without oppressive debt hanging over your head is definitely worth it.

Key Takeaways

  • California debt relief options are meant to help California residents get out from uncomfortable debt burdens, like credit card debt, student loans, and medical debt.
  • A debt settlement, debt consolidation loan, or debt management program are some of the options available to help California residents achieve debt relief.
  • Debt consolidation and debt management plans are easier on your credit scores and will keep debt collectors away.
  • The downsides to debt settlement companies are that they can be expensive, they aren’t always successful, and they’ll generally leave you with poor credit scores for at least seven years.
  • The avalanche and snowball methods of debt repayment are two do-it-yourself ways to pay off unsecured debts while maintaining a good credit score.
View Article Sources
  1. Credit Counseling and Debtor Education Courses — U.S. Courts
  2. What is credit counseling? — Consumer Financial Protection Bureau
  3. Credit Card Consolidation — National Foundation for Credit Counseling
  4. Starting a Business in California? Here’s Everything You Need to Know! — SuperMoney
  5. How To Buy a House In California — SuperMoney
  6. Does Debt Settlement Hurt Your Credit? 7 Things to Know — SuperMoney
  7. How to Consolidate Credit Card Debt — SuperMoney
  8. How to Get a Debt Consolidation Loan — SuperMoney
  9. How To Consolidate Debt With Bad Credit — SuperMoney
  10. Debt Settlement Vs Bankruptcy – Which is Best for You? — SuperMoney
  11. Alternatives to Debt Consolidation: What to Do If You Can’t Consolidate Debt — SuperMoney
  12. Debt Consolidation: In-Depth Guide to Paying off Debt — SuperMoney
  13. Debt Settlement Industry Study — SuperMoney
  14. Best Debt Relief Companies — SuperMoney
  15. Freedom Debt Relief — SuperMoney
  16. Swift Debt Relief — SuperMoney
  17. CuraDebt Debt Relief — SuperMoney