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How to Settle Your Debts in Kentucky

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In a Nutshell

If you are wondering how the Kentucky debt settlement process works, this guide will give you all the tools you need to learn the basics. Once you’re familiar with the process, you’ll be able to determine whether debt settlement is an approach that might work for you and your family. 

Written by Upsolve Team
Updated March 25, 2021

If you are struggling to manage your debt, you are not alone. Many people don’t know that there are different resources available to help them get out of debt and improve their credit score. Many tools can help stop collection calls from collection agencies. Some of these tools include debt settlement, bankruptcy, and debt consolidation. Below, is a discussion of what debt settlement is, how it works, and whether it may be a good solution for your siutation. If you determine that debt settlement is not an ideal solution for your debt-related challenges, you may want to consider some of the debt management alternatives discussed at the end of this guide. 

Debt settlement is one of the most common forms of debt relief available. It is a process that allows you to pay a lump sum of your total balance owed to your creditor. In exchange for that lump sum, your creditor will forgive the remainder of the amount due and close your account. You can negotiate with your creditors on your own, or you can work with one of the many reputable Kentucky debt settlement companies that serve your community. 

With that said, it is important to keep in mind that debt settlement may not be the best debt relief solution for your unique situation. Debt settlement should only be considered if you have enough income available (or property to sell) to fund realistic settlement offers. Before you can settle your debts, your accounts must be delinquent. Most creditors will not consider settling with you if you are current on your accounts. While your accounts are going into default, your credit score will continue to go down and fees will accrue. Only certain types of debt can be settled by a Kentucky debt settlement company. Generally, unsecured debts can be settled, whereas secured debts, like mortgage loans and car loans generally can’t be settled. Finally, know that if more than $600 is forgiven as part of the settlement, the creditor will issue a 1099C. You will need to include the portion of forgiven debt in your tax returns as taxable income. As a result, it is important to weigh your options carefully before committing to the debt settlement process. It can be helpful to speak with a certified credit counselor about your options before making a final decision either way. 

Learn More Through Free Nonprofit Credit Counseling

Scheduling a no-cost credit counseling session with a nonprofit credit counseling agency will allow you to receive expert guidance about your debt management options. Nonprofit Kentucky credit counseling agencies can help you decide which debt relief route you should take after reviewing your personal financial details. If you decide to sign up for a free credit counseling session, a credit counselor will thoroughly review your finances, assets, and income and create a personalized action plan tailored to help you meet your financial goals. Depending on your unique circumstances, your credit counselor may or may not recommend that you pursue debt settlement as part of this plan. Credit counseling agencies that are members of the National Foundation of Credit Counseling (NFCC) must adhere to strict standards and are therefore particularly trustworthy.

How to Settle Your Debts in Kentucky

If you are wondering how the Kentucky debt settlement process works, this guide will give you all the tools you need to learn the basics. Once you’re familiar with the process, you’ll be able to determine whether debt settlement is an approach that might work for you and your family.

Collect The Details About Your Debts 

To start the debt negotiation process, you will need to collect information about your debts. You should have your most recent statements handy for all of your debts. Don’t forget to gather information about debts you are not looking to settle too, so that while you are negotiating you can show the creditor a full picture of your financial situation. You’ll be able to use this “picture” as leverage when explaining why you can’t currently pay your debts back in full. If you don’t have your most recent statements available, you can pull a free credit report online. Your credit report will likely list all of your debts and will let you know if any of your past due accounts have been sold to debt collectors. If so, you’ll need to approach these enterprises directly to negotiate your accounts, not your original creditors. 

Collect Details About Your Ability to Settle Your Debts

Next, you will want to determine your monthly income and create a budget for yourself so that you know what you will be able to afford to pay your creditors. By looking at your income and evaluating what is leftover after expenses, you’ll be in a better position to determine whether it’s realistic to even start a debt settlement process. Note that it is always a terrible idea to cash out your retirement to pay your debts back, as retirement funds are safe from creditors. Therefore, you shouldn’t treat retirement accounts as “income” for the purposes of funding your settlement offers. If you don’t have enough disposable income available to fund settlement offers (and you’re not interested in selling property to fund your offers), it is probably time to speak with a credit counselor about some debt management alternatives. 

Many people contemplating debt settlement tend to be uncomfortable with the idea of not paying back their lenders in full. Often, people seem scared that if they don’t pay a lender back in full, that lenders will not extend credit to them in the future. Lenders may not extend credit immediately. However, once your debt settlements help you to regain broader control of your finances and your credit score begins to improve, your credit worthiness will improve as well and banks will be interested in lending to you again. If you can afford to fund debt settlements and it is an option that will help you financially overall, the benefits of this process are likely to be significant over time. 

Learn About The Costs to Settle Your Debts In Kentucky

If you decide to hire a Kentucky debt settlement company, it’s important to be aware of these costs:

  • High fees paid for their service

  • Bank fees associated with third party accounts 

Educate yourself about how your Kentucky debt settlement company’s fee structure works upfront. There are two ways they can charge you: by charging you a percentage based on the total debt (this option is usually more expensive) or by charging you a percentage based on the total savings. The latter is less expensive and provides more of an incentive for debt settlement companies to get you a better settlement. Make sure to understand how much of your monthly savings will go towards settlement and not the company’s fees. Additionally, remember that the longer the debt settlement process takes, the more fees and penalties will accrue on your accounts. It’s something important to keep in mind when formulating a plan. 

Decide Whether to Work with a Kentucky Debt Settlement Company

If you are organized, computer savvy, able to do simple math, not afraid to negotiate and are willing to get on the phone, you don’t need to hire a  Kentucky debt settlement company to help you negotiate your debts. Anyone can settle debts directly with their creditors. Doing it yourself allows you to avoid high fees charged by the debt settlement company and allows you to remain in complete control of everything that is going on. You will also be able to settle with those creditors who won’t work with Kentucky debt settlement companies. Asking your creditor if they will work with a Kentucky debt settlement company is a good idea before signing up with a debt settlement company.  

With that said, hiring a Kentucky debt settlement company may be a good way to take some stress off of yourself. Not everyone has the time and ability to undertake the time-intensive process of debt settlement on without assistance. Be sure to choose whichever option makes the most sense for you and your unique needs. 

Research Kentucky Debt Settlement Companies

There are many Kentucky debt settlement companies willing to help debtors in need. But before you sign up with any specific company, it’s important to do your research. Many for-profit debt settlement companies operate as scams and should be avoided. Make a list of any issues you want to address with a debt settlement company before signing up: 

  • The price and terms of the services you will be getting. 

  • How long it will take to get results.

  • How your credit will be affected if you stop paying your creditors. 

  • When they collect their fees?

  • How often will you get an update on the status of each account? 

Also, be on the lookout for these potential red flags before signing up wtih any debt settlement company: 

  • The debt settlement projects excitement about “new government programs.” 

  • The debt settlement program makes guarantees - no one can guarantee a creditor will settle for a certain amount, let alone settle at all. 

  • They promise you the world to get you to sign up without reviewing your specific situation. 

  • They are aggressive with you. 

  • They tell you that bankruptcy is not a good option for you.

  • They charge high fees. 

  • They charge fees before they’ve performed a service.

Visit Kentucky’s attorney general website to see if any complaints have been filed against any company you’re considering. You can also check the consumer protection division to see if the debt settlement company is listed there. The Better Business Bureau is also a good place to research a given company’s reputation. 

How to Make Your Debt Settlement Work

To make sure your Kentucky debt settlement program will ultimately be successful, set your settlement payment due date for a day when you will be able to make the payment. For example, you probably won’t want to have your mortgage payment and debt settlement payment due on the same day. 

Alternatives to Debt Settlement

It is always important to remember that debt settlement is not a good debt relief option for everyone. Educating yourself about all of the options that are available is vital to ensuring you choose the right path for you and your family. 

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Kentucky Debt Consolidation

Kentucky debt consolidation loans allow you to combine your debts via a new line of credit. This allows you to make one monthly payment on your combined debt, instead of making multiple payments each month to multiple creditors. Usually, this process will require that you have good credit, as lenders don’t generally extend loans to those with poor credit. If you have poor credit and want to consolidate your debt, a debt management plan is a good option. 

Kentucky Debt Management Plan 

A Kentucky debt management plan, allows you to work with a credit counseling company to make your debt more manageable. Instead of taking out a new line of credit, you pay the credit counseling agency a monthly amount and they then distribute that amount to your creditors. A debt management plan is a good solution for people who have unsecured debt and can afford a monthly payment plan. It can also be a way to lower your interest rates, get rid of late fees, and get your monthly payments lowered. 

Kentucky Bankruptcy 

If you simply can’t pay your debt, Chapter 7 bankruptcy can eliminate your debt legally. Unsecured debt, like credit card debt, medical bills, and personal loans can be eliminated in a Chapter 7 bankruptcy. A Kentucky Bankruptcy is a good way to get a fresh start. Bankruptcy allows you to start rebuilding your credit as soon as the process is over. Upsolve can provide you with all the resources you need to help you file for bankruptcy without an attorney. If you’d prefer to work with an attorney, Upsolve can help you find a reputable firm in your area.

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