How to Pay Off $20,000 in Credit Card Debt Finding…
New Orleans Personal Debt Relief and Personal Debt Settlement[yoast-breadcrumb]
Personal debt is a growing problem for many people in New Orleans and across Louisiana. With high unemployment and low wages, it can be difficult to keep up with credit card bills, medical expenses, and other debts. Fortunately, there are options like debt relief and debt settlement that can provide a path out of debt.
The Debt Problem in Louisiana
Louisiana residents have above average credit card debt compared to other states, with an average balance of $7,260 per indebted household. This is 22% less than the national average, but still a significant burden. Student loan debt is also an issue, with the average Louisiana borrower owing $34,508 in 2019. High unemployment contributes to the debt problem. As of February 2020, Louisiana’s unemployment rate was 5.2%, much higher than the 3.5% national rate. With less income, it becomes harder to service debts, leading to late fees, interest charges, and damage to your credit.
How Debt Relief Works
Debt relief provides a way to consolidate multiple debts into a single payment plan. Non-profit credit counseling agencies can set up these plans and negotiate with your creditors. Here’s how it works:
- You stop paying creditors directly and instead make one monthly payment to the agency. They disburse payments to your creditors.
- The agency negotiates with creditors to waive fees, lower interest rates, and create a repayment plan you can afford.
- You get out of debt faster by paying less interest and fees. Your credit score can also improve as you make consistent payments.
- Debt relief services are typically free or low cost through non-profits. Beware of high fees from for-profit companies.
The Debt Settlement Option
Debt settlement takes a more aggressive approach to debt reduction. Instead of setting up a repayment plan, the goal is to negotiate a lump-sum settlement for a fraction of what you owe. Here are some key things to know:
- You stop making payments to creditors and instead save up settlement funds in a dedicated account. This can take 1-5 years.
- The settlement company negotiates with your creditors to accept a lump sum payment that is often 30-50% less than the balance.
- There are risks, like continued late fees, credit damage, and collection calls while saving up funds. Creditors can also sue.
- Fees average 20-25% of enrolled debt. Get all terms in writing before signing up.
- Any savings from settled debt may be considered taxable income. Consult a tax pro.
Which Option is Best?
Debt consolidation through a non-profit credit counseling agency is lower risk and less likely to damage your credit. Debt settlement can eliminate debt for less but also comes with more downsides. Consider your specific situation carefully.
Beware of Debt Settlement Scams
Many predatory companies falsely promise easy debt relief. Warning signs of a scam include:
- Guarantees to make debt go away or repair your credit quickly
- Requires large upfront fees before providing services
- Tells you to stop communicating with creditors
- Pressures you to make hasty decisions
Only work with reputable companies and get all terms in writing first. Ask questions and understand the risks.
Other Debt Repayment Options
Besides formal debt relief programs, you may consider:
- Debt consolidation loans – Combine debts into one loan with lower interest
- Balance transfer credit cards – Transfer balances to a 0% APR card
- Budgeting and payment plans – Free options to manage payments yourself
- Bankruptcy – Legal process to eliminate debt under Chapter 7 or 13
Evaluate all options thoroughly before deciding which path to take.
Getting Your Finances Back on Track
Whichever debt solution you pursue, it’s important to address the root causes that led to debt in the first place. Here are some tips:
- Examine spending and look for areas to cut expenses
- Build an emergency fund to avoid new debt during financial shocks
- Boost income with a side job if possible
- Avoid unnecessary new credit and loans
- Review your budget frequently and adjust as needed
With time and discipline, you can reduce debt, improve your credit, and regain financial stability. Seek help from reputable sources like credit counselors and financial advisors. Relief from debt in New Orleans is possible with the right approach.