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How To Settle Your Debts in Louisiana

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In a Nutshell

The rest of this guide will help you prepare to settle your debts for less than the full amount you owe. It will also give you other debt-relief options to consider if debt settlement isn’t a good option for you at this time.

Written by Upsolve Team
Updated December 31, 2021

When you owe a lot of money to creditors and feel like there's no way out, the first step to becoming financially independent is recognizing that you need help with your debt. No one wants to get harassing phone calls from debt collectors or be charged late fees. Luckily, there are many resources available for people who are in debt and determined to regain their financial footing.

One of these resources is the Louisiana debt settlement process. In a debt settlement, you pay a creditor a lump-sum fraction of your balance in exchange for partial debt forgiveness. Once the process is complete, your account is closed. You should only consider the debt settlement process if you have certain types of unsecured debt. Credit cards and personal loans are some of the most common forms of unsecured debts that debt settlement companies are usually willing to negotiate.

If you're struggling to pay your auto loan, federal student loans, or overdue child support payments, unfortunately, debt consolidation probably won’t help you. You’ll need to look into debt management alternatives for debts you can’t settle.

Debt settlement can be accomplished either on your own or with the help of a Louisiana debt settlement company. Louisiana debt settlement companies usually require clients to make payments to an escrow account or another bank account. Once there are enough funds in the escrow account, the debt settlement company will use those funds to offer settlements to your creditors. Settlements with your creditors can be worked out in two ways. They can either be paid lump-sum or in installments depending on what you and the creditor mutually agree to. 

If you decide that you want to settle your debt, you may face tax consequences from the IRS. If more than $600 is forgiven as part of the settlement, the creditor will issue a 1099C for the amount of the forgiven debt. You will need to include the forgiven amount as taxable income. Lenders don’t always issue the 1099C form in a timely manner, so it’s important for you to keep an eye out for it. 

Learn More Through Free Nonprofit Credit Counseling

If you're looking for debt-relief options, you should seek out a nonprofit credit counseling agency to help you deconstruct your finances and help you build a personalized action plan to meet your financial goals. At a free credit counseling session, a credit counselor will review your financials and determine a plan of action to help you get out of debt. By thoroughly evaluating all of your financial information, you and your credit counselor will set short and long-term financial goals, and figure out a plan of action.

Accredited, nonprofit credit counseling agencies offer a free credit counseling session to anyone interested in learning about their options. To find a reputable credit counseling agency in your area, you can visit the National Foundation for Credit Counseling or call them at 1-800- 388-2277.

How To Settle Your Debts in Louisiana

The rest of this guide will help you prepare to settle your debts for less than the full amount you owe. It will also give you other debt-relief options to consider if debt settlement isn’t a good option for you at this time.

Collect the Details About Your Debts

To prepare for your debt settlement, you will need to gather copies of all of your bills. You will need to review your most recent bills carefully to ensure you know how much you owe and who “owns” each of your debts. Get an idea of how much the monthly payments are on each bill to help you understand which debts are potential candidates for the settlement process. If you don't have your most recent statements, a good place to look for them is by signing into your account online and printing a copy or calling the creditor and requesting a copy. Alternatively, you can pull a free credit report to help you organize your debt information. You should pull a report from each of the three major credit bureaus in case some information is left off of one statement or another. Keep in mind that if you have not paid your debts in a while, more than likely the accounts were sold off to other attorneys or collection firms. This information will be accessible on your credit report.

Collect Details About Your Ability to Settle Your Debts

To make your debt settlement work, you will need to know what you can afford to pay, either in a lump sum or by installments. As a result, you will need to go through your income and expenses. Start by gathering your last 6 paychecks so that you can see what your average income is. If you have a paycheck that shows a lot of overtime, this will throw off your figures so try not to use it. Next, you will want to go through your living expenses. Make a list of all of your monthly expenses. Don’t forget to include bills that only pop up periodically but are likely to come around again soon. You should also always leave money aside for emergencies. If you don’t have the income available to make a settlement offer after evaluating your expenses, then debt settlement is probably not a good fit for you. 

Note: do NOT use money from any of your retirement plans to fund settlement offers. Withdrawing money from your retirement can leave you with nothing later and cause hefty penalties if you withdraw it early. If you are thinking about wiping out your retirement to pay your debt back, it is best you look into another debt relief option first.

Learn About the Costs to Settle Your Debts in Louisiana

If you decide to move forward with a debt settlement program, you will need to be aware of the costs you may be required to pay. First, as your accounts continue to be delinquent and you neglect to pay your creditors, you will accumulate late fees, higher interest rates, and other fees and penalties. If you choose to use a Louisiana debt settlement company to help you, you will also have to pay their fees. Some debt settlement companies will make you open up an escrow account. By doing such, you may incur bank feed associated with this account. Further, you will want to make sure you understand when the debt settlement company is going to post their fees. Some debt settlement companies will charge you based on the total debt while others will charge you a percentage of the amount they save you. Paying a percentage on the amount the debt relief company saves you is always the better route to take because it gives the debt settlement company an incentive to get a better deal for you. 

Decide Whether to Work With a Louisiana Debt Settlement Company

You don't have to hire a Louisiana debt settlement company if you don’t want to. Not hiring a company to help you can save you a lot of money. A DIY approach also allows you to remain in charge of your finances. Negotiating settlements yourself is therefore generally a good idea as long as you stay organized. However, negotiating debts can be very time consuming, if you don’t have the time to devote to this process, you may want to leave it to a debt settlement company to help you. A debt settlement company usually will have inside knowledge to get you the best deals, which is a bonus. 

Research Louisiana Debt Settlement Companies

Before hiring a Louisiana debt settlement company, make sure that you are getting good information about their reputation and services. You should check to see if there are any complaints filed against the company to make sure the company you are considering is not a scam. You can check the company's rating with the Better Business Bureau. Many debt settlement companies are scams and hiring a bad company to work with can make financial matters much worse for you. The office of the Louisiana Attorney General is a good place to see if any complaints have been filed against the company. You can also check out the Consumer Protection Bureau to see if any complaints due to fraud have been filed. If any debt settlement company tries to use forceful tactics to get you to sign up, stay far away! Do your homework before signing up to any company to avoid being taken advantage of. 

How to Make Your Debt Settlement Work

To ensure a smooth process, you will want to make sure you stick to your budget so you don’t end up falling behind on your settlement payments (if you’re making them in installments). Making sure your settlement payments are due on a day that you will have the funds available is essential. Don’t have your car payment, mortgage payment and debt settlement payment due on the same day. Falling behind on your debt settlement payment can cause your entire balance to become due again.

Alternatives to Debt Settlement

For some people, debt settlement is a good debt relief strategy. For most people, however, it is not. Other debt relief options such as debt consolidation, bankruptcy, and debt management programs are better options. Below, you’ll find a brief explanation of each alternative to help you get on the right path for you. Remember, if you are unsure of which path to choose, speaking with a credit counselor can really help you to determine which option will suit your financial situation best. 

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Louisiana Debt Consolidation

A Louisiana debt consolidation loan is a new line of credit that you secure so that you can use it as a balance transfer to pay off your existing debts. A debt consolidation loan is a great way to lower your monthly payments if you have a high credit score and can secure a new loan at a more favorable interest rate. If you have a home, you can take out a home equity loan. If not, you will need to go to the bank and apply for a loan or secure a credit card balance transfer if the only debt you’re consolidating is credit card debt.

A debt consolidation loan will help you by giving you one low monthly payment to attend to instead of several smaller payments to numerous creditors. This will allow breathing room so you can pay your other living expenses like your mortgage or rent, groceries, and utilities. 

Louisiana Debt Management Plan

A Louisiana debt management plan is a form of debt consolidation. However, this process doesn’t involve taking out a new loan, so you don’t have to have a good credit score to qualify for this option. In a debt management plan (DMP), your credit counselor works with your creditors to negotiate a repayment schedule that fits your budget. Further, you won’t be working with your creditors directly anymore. Instead, your credit counselor will be negotiating with them. Once a plan has been agreed upon, you’ll make one monthly payment to the agency. The agency will then distribute your funds to your various creditors on your behalf. 

Louisiana Bankruptcy

A Louisiana bankruptcy is the most comprehensive way to resolve your debt challenges. Bankruptcy wipes out your eligible debt and allows you to start over fresh. This can be the least stressful option if you’re willing to allow your credit score to take a temporary “hit.” This process will also stop collection calls and any collection agencies from harassing you for non-payment. Upsolve provides free tools and resources for you to file for Chapter 7 bankruptcy with or without the assistance of an attorney. 

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