California is a land of dreams for many. From majestic forests and coastlines to the glamour of Hollywood and the innovation of Silicon Valley, residents of the Golden State earn one of the highest per capita incomes in the country.

However, Californians also carry some of the highest levels of debt in the country. Golden State residents owe an average of nearly $150,000 in total debt.

As many residents struggle to pay bills and clear debts amidst inflation and economic instability, debt relief options can become a lifeline toward regaining financial freedom. Read on to learn more about debt relief in California and how top programs have helped thousands of Californians escape the cycle of unpaid balances.

Your Options To Get Out of Debt in California

Here are the top ways to pay off large debts in the Golden State:

Debt Settlement

Negotiating lower balances using debt settlement can reduce your total unsecured debt by up to 50%, making it an effective solution for residents with high credit card balances, outstanding personal loans, or even medical debts.

How It Works in California
Cali residents can pay off thousands of dollars in unsecured debts by negotiating with creditors through a settlement company or using the DIY method.
Pros
Allows you to reduce your total unsecured balances for a quicker and less expensive payoff, saving you both time and interest costs
Cons
Can lower your credit score significantly
Cost
California settlement companies typically charge fees ranging from 15-25% of your total enrolled debt, but a reputable company will never charge you fees upfront.
Stats
-In California, 14.7% of residents have debt in settlement 
-California residents alone have enrolled over $400 million in debt
Resources
-The American Association for Debt Resolution explains the process of settlement to consumers.
-California’s Attorney General offers consumers tips for dealing with debt collectors.

Credit Counseling

Credit counseling can be a great first step in relieving debt if you’re looking to improve your credit score, review your credit reports and history, and get some sound economic advice from a credible source.

How It Works in California
Many credit counseling organizations offer services to Cali residents at little or no cost. Nonprofit agencies and employers provide and connect Californians to services that help boost credit and teach financial literacy.
Pros
Programs are often free or at little cost to clients and offer a wide range of services
Cons
May require you to commit to a financial education program to receive services
Cost
Credit counseling agencies may charge a small fee or offer reduced or free services to low-income clients.
Stats
N/A
Resources
-The state of California offers suggestions for reviewing your credit score and credit reports.
-Cali residents can connect with a nonprofit credit counselor and learn more about financial topics through the Financial Counseling Association of America.

Debt Management Plans

Many credit counseling agencies also offer debt management plans (DMPs) to help clients organize and pay off debts.

How It Works in California
Cali residents can connect with a nonprofit or private credit counseling organization to set up a plan that assists borrowers in paying down outstanding debts through the agency.
Pros
Creates a monthly plan to pay down debts
Cons
Often requires you to close out all your open revolving credit accounts to prevent additional spending while you’re using the program
Cost
Most DMPs require clients to pay an initial setup fee and charge a monthly fee for each account on the payment plan.
Stats
California's debt-to-income ratio of 1.744 makes it likely that many residents’ debt exceeds their income.
Resources
Learn more about the pros and cons of debt management plans and how to enroll.

Debt Consolidation

Golden State residents can opt to pay off large balances by transferring them to a new credit card account with zero interest or by taking out a low-interest, fixed-rate consolidation loan big enough to cover all current debts.

How It Works in California
California’s high average credit score of 722 makes it easier for residents to access better interest rates when taking out a consolidation loan or applying for a 0% balance transfer card.
Pros
Allows you to reorganize debts into a single monthly payment
Cons
It may take longer to pay off a loan, or it may cost more in interest after the initial zero-interest period on a credit card account expires
Cost
The cost of your debt consolidation loan depends on your interest rate and the total amount of debt you transfer over. With a balance-transfer credit card, you’ll be charged the card’s standard interest rate (up to 36% in some cases) on the balance that’s left over after the initial 0% promotional balance transfer rate expires.
Stats
Consumer debt in California averaged $148,428 in 2023.
Resources
Read more to find out if debt consolidation is right for you.

Bankruptcy

When all other debt-relief options fail, bankruptcy is your last resort for eliminating outstanding debts through California’s court system.

How It Works in California
California’s bankruptcy courts are broken into four districts: Northern, Eastern, Central, and Southern. Individual consumers usually file either Chapter 7 or 13 bankruptcy through the district office closest to their residence.
Pros
Can eliminate most or all of your debts
Cons
The process may require you to sell off assets to pay creditors before you have your remaining debts discharged
Cost
Court and filing fees may differ based on where you file and which type of bankruptcy you choose, so check local fee schedules. You’ll also owe fees to a bankruptcy attorney unless someone takes on your case pro bono.
Stats
A total of 38,597 Golden State residents filed for bankruptcy in 2023, a 25% increase from the previous year.
Resources
-Northern Bankruptcy Court of California 
-Eastern Bankruptcy Court of California 
-Central Bankruptcy Court of California 
-Southern Bankruptcy Court of California

What You Need To Know About Debt in the State of California

“California has some of the strictest laws in place to protect its citizens, and that is evidenced and supported by California Attorney General Rob Bonta’s consumer protection webpage,” shares Brad Reichert, founder and managing director of Reichert Asset Management.

“He and the attorney general’s office provide valuable information to California residents about their rights under the law, as well as the latest scams and tricks that fraudsters attempt to use these days,” Reichert adds. “By knowing your rights and knowing what to look out for, you can protect yourself while you’re on the road back to financial wellness.”

Statute of Limitations on Debt in California

Each state sets a statute of limitations on debt collection to protect consumers and govern how long a creditor can legally pursue a debt using the state’s court system. Here are the details about California’s statutes:

Type of Debt Agreement Length of Time Collectible
Written Contracts4 years
Promissory Notes (such as a mortgage)4 years
Open-Ended Accounts4 years
Oral Agreements2 years

Statute of Limitations on Medical Debt in California

With 6-10% of the population of California carrying medical debt in collections, the statute of limitations helps consumers with limited income handle medical expenses. In California, the statute of limitations on medical expenses is four years.

Student Loan Forgiveness in California

Californians owe an average student loan debt of $36,891, with many finding it difficult to pay back debt in an uncertain economic climate. The Golden State and other partners offer several assistance programs to help residents struggling with student loan debt:

Student Tuition Recovery Fund (STRF)

California’s Student Tuition Recovery Fund mitigates or relieves economic losses for students enrolled in a school approved by the California Bureau for Private Postsecondary Education.

Health Resources and Services Administration (HRSA)

In 2023, HRSA provided over $41 million in loan repayments and scholarships to Californians through the following programs:

  • National Health Service Corps
  • Nurse Corps
  • Substance Use Disorder Treatment and Recovery Loan Repayment Program
  • Pediatric Specialty Loan Repayment Program
  • Faculty Loan Repayment Program

Resources for Financial Assistance in California

California’s Department of Public Social Services offers programs to help those struggling with economic hardship. Here are the top ways Californians can access cash assistance resources:

  • General Relief (GR): Qualifying Los Angeles residents can receive up to $221 a month through the GR program.
  • CalWORKs: California’s Work Opportunity and Responsibility to Kids program offers temporary financial assistance and employment-focused services to families with minor children after they meet certain state requirements.
  • Refugee Cash Assistance (RCA): The RCA program aids certain individuals not eligible for welfare services, providing housing, food, medical assistance, and employment-focused services. 
  • Cash Assistance Program for Immigrants (CAPI): This program provides cash assistance to aged, blind, and disabled legal immigrants who are ineligible for other state benefits.
  • Stimulus Check: At this moment, no California stimulus check is planned for 2024 or beyond.
  • Tax Refund: The California Middle Class Tax Refund (MCTR) provided one-time inflation relief to eligible residents.

Learn more about financial assistance for California residents, including programs for families and veterans, plus medical benefits.

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