Alabama Debt Relief: The Tools You Need to Escape the Debt Trap

Alabama has made some significant inroads when it comes to credit card debt. In a 2019 report, the state was ranked near the bottom. But according to a 2022 analysis, Alabama had a median of $2,013 in credit card debt, the third-lowest total of any state, behind South Dakota and Mississippi. The average payoff time is 11 months and 12 days.

That’s a little bit of a surprise considering that Birmingham ranks No. 10 on the list of cities with the worst payday lending problems.

If you’re an Alabama resident who needs debt relief or other financial assistance, read on to learn about your state’s key resources.

Alabama overview

Alabama’s total population was around 5,039,877 at the last census. In 2020, the state’s estimated poverty rate was just under 15%, making it the 8th highest in the country. In comparison, the national average poverty rate is 11.6%.

For Alabama residents, the median household income is approximately $52,035. This is around $18,000 less than the real median household income in the United States.

Alabama debt statistics

Here are the most recent debt statistics for Alabama:

  • Average household debt: $47,090 (Source: Federal Reserve Bank of New York)
  • Average student loan debt: $37,137
  • Average credit score: 691
  • Median mortgage payment: $1,147 (monthly) 
  • Bankruptcies: 306.37 per 100,000 residents filed in 2021 (highest personal bankruptcy filing rate nationwide)
  • Personal income: $48,110
  • Child poverty: 21.4% in 2019
  • Unemployment: 2.6%

Debt relief options

  • Debt settlement: Generally done through a debt settlement agency, this process involves negotiating with your creditors to reduce how much you owe on an account. You may need to make a lump-sum payment to fully clear the debt. Once you’ve done this, the debt is considered forgiven.
  • Debt consolidation loans: With a debt consolidation loan, you can combine multiple high-interest debts into a single loan with one monthly payment. This can help simplify monthly payments and prevent late fees. Depending on the loan, you could also save money on interest fees.
  • Debt management plan: DMPs are usually offered by nonprofit credit counseling agencies. When you set one up, a credit counselor will work on your behalf to negotiate with your creditors and help keep you on track with paying off what you owe. They may be able to get creditors to waive late fees or lower monthly payments.
  • DIY plans: If you have good negotiation skills and are dealing with debt collectors, consider a DIY plan. You may be able to set up a repayment plan that works with your  budget or reduce your debt.
  • Bankruptcy: A Chapter 7 bankruptcy could wipe out your debt and give you a fresh start, at the risk of ruining your credit. If you have a lot of debt and steady income, Chapter 13 might be better for you.

If you’re thinking about filing for bankruptcy in Alabama, check out this video for more information:

Debt settlement resources

Debt settlement involves negotiating with your creditors to reduce the total you owe. In Alabama, virtually all unsecured debts can be settled. This includes:

  • Credit cards
  • Department store cards
  • Personal loans or lines of credit
  • Personal lines of credit
  • Old judgments
  • Student loans in default

You can settle your debts in two ways:

  • Negotiate directly with your creditors
  • Use a professional debt settlement company

Debt settlement companies

Debt resources for Alabama residents facing hardship

Alabama State has various state and local resources that help residents dealing with economic hardship. These programs can help with things like:

  • Rent or mortgage payments
  • Utility bills
  • Job training
  • Child care
  • Food and nutrition
  • Healthcare
  • Legal assistance

Food assistance

Almost half of American families are currently struggling to put food on the table. Alabama has many food banks throughout the state. Feeding Alabama has a comprehensive list of these, but here are some of the main ones:

Debt collection laws

Like the rest of the United States, Alabama is covered by the Fair Debt Collection Practices Act (FDCPA). This Act helps regulate debt collectors by preventing them from taking certain actions to try to collect money.

For example, debt collectors cannot willingly deceive, harass, manipulate, or threaten you to get you to pay. They are also limited in how and when they contact you. Furthermore, they cannot claim you owe a debt you don’t.

In addition to the FDCPA, Alabama has a licensing statute that applies to debt collectors: Ala. Code §40-12-80. This statute applies to anyone the FDCPA considers to be a debt collector. It requires debt collectors to obtain a special license before they can legally try to collect debts in the state.

It’s not entirely clear whether the statute is only enforceable by a government entity, or if an individual can sue a debt collector not licensed in the state.

READ MORE: How to deal with debt collectors when you can’t pay

Income and employment statistics

Many states experienced a major increase in unemployment, including Alabama. In April 2020, the state’s unemployment rate was 13.7%. By August 2022, it had dropped to 2.6%. This is noticeably lower than the national average of 3.5%.

Currently, Alabama is ranked 45th in terms of job growth. In August, there were over 36,000 new jobs created in the state.

Alabama is both a “right-to-work” state and an “employment-at-will” state, meaning:

  • Right-to-work: This means new workers have the right to join a union or not upon employment. However, it also means that there are not many protections in place for employees. For example, workers in a right-to-work state receive, on average, $1,500 less each year than in other states.
  • Employment-at-will: This means that employers can fire their employees for any reason, or no reason at all. Because of this, employees often experience less job security than in other states. There are a few exceptions to this. For instance, an employer cannot terminate a worker due to discrimination, taking time off for specific reasons (ex. family medical), or leaving for active duty.

How to apply for unemployment benefits

If you need to file for unemployment benefits, fill out an application on the Alabama Department of Labor website. Alternatively, file a claim on the phone here: 1-866-234-5382.

The application process is straightforward and requires a few things, such as:

  • Your government ID (ex. driver’s license) and Social Security number
  • Mother’s maiden name
  • Details about your most recent employment

File as soon as possible since it can take a few weeks for you to receive your first benefits payment.

For more information, refer to the Alabama Department of Labor.

Banking and taxes

Alabama has something called “graduated individual income tax.” This means that the tax rate increases as income does. The rate also changed based on whether you’re married or single.

Here’s how Alabama income tax works for single filers:

  • 2% for the first $500
  • 4% for the next $2,500
  • 5% for anything above $3,000

For those who file jointly, the income tax is:

  • 2% for the first $1,000
  • 4% for the next $5,000
  • 5% for anything above $6,000

Sales tax in Alabama is generally 4% for anything classified as entertainment or general use. For a breakdown of different sales and tax rates, check with the Alabama Department of Revenue.

As for banking, 7.6% of Alabama residents were unbanked in 2019. Since the state’s estimated population is 5,039,877, that’s around 383,030 people without a checking or savings account.

Housing market

According to Zillow’s findings, the average home value in Alabama is $215,294 — a 15.8% increase over the past year. This is over $100,000 less than the average home value in the U.S., which is $356,026.

Around 69.2% of Alabama residents own and live in their own home.

The average mortgage payment is $1,147 per month. The average rent payment depends on the city. For example, it’s $1,278 in Birmingham, the most populated city in the state.

Some Alabama residents also benefit from a homestead exemption. Eligibility depends on things like age, whether the homeowner has a qualifying disability, taxable income, and home type.

Retirement in Alabama

The average Alabama resident has $395,563 saved for retirement. To live comfortably during retirement, it’s recommended to have at least $560,062 set aside.

Average insurance premiums

The standard car insurance premium in Alabama is around $1,424 annually. This breaks down to about $118 a month.

As for home insurance, Alabamians spend an average of $1,597 a year for a home valued at $250,000.

Payday lending status: Legal

Payday loans are legal in Alabama, despite the predatory nature of payday lenders.

Alabama does have certain payday loan laws restricting the way lenders operate in the state. For example, there’s a cap on the maximum principal loan amount and interest rates. Unfortunately, these limits don’t protect consumers as much as they should.

Birmingham, Alabama ranked #10 on DebtHammer’s list of U.S. cities with the worst payday lending problems.

Payday loan terms and debt limits

  • Maximum loan amount: $500
  • Maximum Interest Rate (APR): 456.25% on a 14-day loan with a $100 principal
  • Minimum loan term: 10 days
  • Maximum loan term: 31 days

Alabama’s statute of limitations on debt

The statute of limitations is the period in which a creditor or debt collector can legally take you to court to try to collect on the debt. Once it expires, the debt becomes time-barred.

In Alabama, the statute of limitations is as follows:

  • Mortgage debt: 6 years
  • Medical debt: 6 years
  • Credit card: 3 years
  • Auto loan debt: 4 years
  • State tax debt: 10 years

State programs

Alabama has several state-specific hardship programs and resources available to individuals in need. Here are just a few:

  • Temporary Assistance for Needy Families (TANF) or Family Assistance Program: Low-income families with dependent children may be eligible for temporary financial assistance. For example, a family of three could receive $215 a month.
  • JOBS Program: All 67 counties in Alabama have the JOBS Program, offered through the Department of Human Resources. This program can help parents who are currently receiving financial aid find and maintain employment. It also offers job readiness and skills training resources.
  • The Individual and Households Program: Also known as IHP, this program is designed to help residents with things like housing assistance, provisions, small health expenses, and flood insurance.
  • Alabama Low-Income Home Energy Assistance Program: LIHEAP helps households pay for their energy costs. Eligibility depends on factors such as income, household size, and whether or not the applicant has a disability. To apply, contact your county’s agency. Or find more information on the Alabama Department of Economic and Community Affairs site.
  • Alabama Power: This online resource can help connect people in need with utility bills – particularly water and power.
  • Emergency Rental Assistance: The Emergency Rental Assistance program helps low-income households with their rent payments. To be eligible, your primary residence must be located in Alabama. You must also make less than 80% of your region’s median income.
  • Child Care Centers: There are subsidized child care centers throughout the state for low- to moderate-income families who need access to quality child care while working or in school. These centers are available in nine regions.

Help for Veterans

Alabama is home to about 359,506 Veterans. Alabama’s Alabama Department of Veterans Affairs offers resources that can help veterans facing unemployment, homelessness, or other financial hardships.

Facilities in Alabama

Alabama has three full-service VA hospitals. They’re located in Birmingham, Tuscaloosa and Tuskegee. There are several smaller clinics scattered across the state.

There are 63 veterans service offices in Alabama. Here are some of the main ones.

Baldwin County Veterans Service Office

  • Baldwin County Satellite Courthouse
  • 201 East Section Avenue, Foley, AL 36535
  • (251) 937-0218

Montgomery/Bullock/Lowndes County Veterans Service Office

  • Montgomery Co. Courthouse
  • Annex II, 125 Washington Ave Second Floor, Room 220 Montgomery, AL 36102
  • (334) 832-1392

Shelby County Veterans Service Office

  • 127 1st Street SW, Alabaster, AL 35067
  • (205) 624-3162

Marshall County Veterans Service Office

  • Marshall County Courthouse
  • 424 Blount Avenue, Suite 34 Guntersville, AL 35976
  • (256) 571-7761

Looking for a specific office? Check out this service finder map.

Employment resources for Veterans

If you’re a veteran looking for employment resources, here are some to check out:

  • CareerOneStop: This site provides information for those looking for job resources. It has an online portal you can use to find available jobs.
  • VeteranRecruiting.com: This is geared towards veterans and military spouses looking for employment. It also has a virtual recruitment center with online career fairs.
  • Helmets to Hardhats: Located throughout the U.S., this program helps active military members and veterans transition into civilian careers in the construction industry.
  • Hiring Our Heroes: Operating nationwide, this program helps veterans and other associated individuals through networking, career, and education opportunities.
  • My Next Move: This site lets you find potential careers based on your skills while in the military. There’s also a section for non-veterans looking for a job.
  • Warriors to Work: This program also helps veterans via career counseling, resume assistance, and more. It’s part of the Wounded Warrior Project.
  • Still Serving Veterans: Here, you can find help finding a career and transitioning into civilian life.

The Bottom Line

Whether you’re looking to get out of debt or want to improve your financial situation, Alabama has many resources and programs that can help. This includes everything from temporary financial hardship relief to job resources for military personnel. Whatever you need, the best thing you can do is be aware of your options — and rights — as an individual.

FAQs

How long can a debt be collected in Alabama?

This depends on the type of debt, but most debt can be collected for 3 to 6 years. State tax debt, however, can be collected for 10 years.

When does the statute of limitations on debt begin in Alabama?

It usually begins once you miss a payment. The period can restart if you make a payment at any time.

Am I responsible for my spouse’s debt if I get divorced in Alabama?

Alabama is classified as an equitable distribution state. What this means in terms of debt is that any debt accrued during marriage is split between the parties. It may not be a 50/50 split, however.
If your spouse had a specific debt before marriage, or if the debt is strictly tied to them, they are usually responsible for repaying it. When in doubt, gather any related documents and speak with a divorce attorney. 

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