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Debt Settlement

Kentucky residents generally maintain better than average credit card debt levels, ranking number 17 among the 50 states. Yet many Bluegrass State consumers find themselves over their heads in debt. Some may have tried credit counseling where they’ve received advice on managing money, sticking to budgets and have received financial education yet still find themselves struggling or falling further behind. For those folks, the next option to consider may be debt settlement.

“Debt settlement groups help consumers negotiate reductions in the amount owed,” according to the Kentucky Office of the Attorney General. “Debt settlement may be a viable option to help you eliminate your debt. However, if you choose the wrong company, you may find yourself in worse shape than you were before.”

Avoiding Debt Settlement Scams

To avoid debt settlement scams in Kentucky, it’s helpful to understand the legal limits placed on companies doing business in this field. According to Kentucky Statute 340-240, a debt settlement company may not charge more than $75 for an initial fee or more than $50 for an annual consulting fee. The limit on monthly fees on money being paid to debt settlement agencies cannot exceed $30 or 8.5 percent, whichever is greater. For repayment of mortgage debt, no fee can be charged in advance of the complete performance of all promised services. Armed with this knowledge, a consumer may avoid working with non-compliant companies.

The Federal Trade Commission says you should avoid doing business with any company that promises to settle your debt if the company:

  • Charges fees before it settles your debts
  • Promotes a "new government program" to bail out personal credit card debt
  • Guarantees it can make your unsecured debt go away
  • Tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • Tells you it can stop all debt collection calls and lawsuits
  • Guarantees that your unsecured debts can be paid off for pennies on the dollar

The Federal Trade Commission offers in-depth explanations on its Money Matters website.

It probably took years to accumulate burdensome debt; it will take quite some time to properly pay it down. Don’t be swayed by companies making outlandish claims.

Kentucky Debt Settlement Agencies

“Debt settlement groups help consumers negotiate reductions in the amount owed,” reports the Kentucky Office of the Attorney General. “These reductions may include reduced interest rates, lower monthly payments, reduced number of collection calls, reduced late fees and over limit fees; however, their fee structures vary from large upfront fees to spread out payments on a monthly basis.”

The state of Kentucky requires debt adjusting companies to register and meet certain minimum standards including providing insurance and a surety bond and they offer a list of registered companies online for review.

Amid the process of managing a high debt load, Kentucky homeowners may want to avail themselves of Kentucky’s Homeownership Protection Center services as part of their recovery plan. The Homeownership Protection Center is the only statewide assistance program created by the Kentucky state government. Kentucky homeowners have 70 percent more high-cost mortgage loans (4.2 percent versus 2.47 percent) than the U.S. average, but have a lower mortgage delinquency rate and a lower foreclosure rate.

For help in finding reputable companies, consumers in Kentucky may wish to obtain information from the Better Business Bureau or check with the National Foundation for Credit Counseling.

Credit Counseling

If you live in Kentucky and are struggling with credit card debt, student loans or medical bills or are having trouble keeping up with your mortgage payments, you may want to consult with a credit counselor. If you’re considering bankruptcy, you’re required by federal law to receive credit counseling and a debtor education course.

How Counseling Can Help

Budgeting and Repayment Plans

If you need help setting a budget and figuring out how to manage your debt repayment, the U.S. government provides a list of approved credit counselors in Kentucky. In Kentucky, credit counselors generally review your debts and your income and give you advice. They’ll charge you a standard fee, but by law they must provide this assistance free of charge if you cannot afford to pay.

Debt Management Services

Debt management services, which are also provided by credit counseling agencies and other debt adjuster organizations, function as a middleman between you and your creditors. Generally, these debt adjustors will work with your creditors to lower your interest rates and eliminate your late and over limit fees. Once this negotiation is complete, you’ll be required to make a monthly payment that will be used to pay all your bills. The Kentucky government, which passed laws in 2005 and 2010 establishing registration requirements for debt adjustors, provides a list of approved debt adjusters, which must be registered, insured and bonded.

You may be attempting to handle your own debt problems, but if you are using one credit card account to pay off another or are only making the minimum payment on each credit card account, then you should look into the benefits of getting some expert advice. Kentucky’s government has put in place consumer protections and lists of approved credit counselors so you can feel more confident that you are working with a legitimate company that has your best interests in mind.