How to Consolidate Your Debts in Alabama

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In a Nutshell

Before you can apply for an Alabama debt consolidation loan and consolidate your debts, you’re going to need to determine exactly what your debts consist of, how much income you reliably make on a monthly basis, and what your household budget is. Once you have all this information available, you can assess your loan options and move forward with debt consolidation in a way that makes the most sense for your unique financial situation.

Written by Attorney Kassandra Kuehl.  
Updated December 11, 2019


If you’re struggling to make multiple debt payments each month, you may benefit from the process of debt consolidation. Debt consolidation allows you to reduce your multiple monthly payments to a single monthly debt payment. When you consolidate your debts to a single, lower monthly payment, you’ll likely benefit from a lower interest rate than you’re currently paying on most, if not all, of your current accounts. The way that debt consolidation works usually involves securing a low-interest loan and using that loan like a balance transfer. Meaning, you’ll use the loan to immediately pay off your current debt balances. The type of loan you’re able to secure will depend on your circumstances, including the types of debt you have, whether you currently benefit from good credit, and the total amount of debt you’re trying to consolidate. Exploring debt consolidation may be a particularly good option for you if you’re striving to become debt-free and want a singular account to focus your repayment resources on, you’re unlikely to incur additional debts in the near future, and you don’t need significant debt relief. If your income can stretch to cover a single monthly payment, you can make that payment reliably, and your spending habits aren’t out of control, securing an Alabama debt consolidation loan may be an option worthy of your consideration.

Learn more through free nonprofit credit counseling

It isn’t always easy to know whether pursuing debt consolidation is the best option for an individual’s particular circumstances. Thankfully, you can seek informed guidance about the best ways to achieve your financial goals by scheduling a free credit counseling session with an accredited, nonprofit organization that offers this service in your area. During your session, you’ll answer a credit counselor’s questions about your debt, income, monthly bills, goals, and financial challenges. At the end of your meeting, your credit counselor will provide you with an action plan. The recommendations you receive may or may not include debt consolidation as a step that fits your needs and circumstances. 

How to Consolidate Your Debts in Alabama

Before you can apply for an Alabama debt consolidation loan and consolidate your debts, you’re going to need to determine exactly what your debts consist of, how much income you reliably make on a monthly basis, and what your household budget is. Once you have all this information available, you can assess your loan options and move forward with debt consolidation in a way that makes the most sense for your unique financial situation.


Collect the Details About Your Debts

To better determine whether pursuing debt consolidation makes sense in your situation, it’s important to examine your current debts and to total them up. One of the best ways to go about assessing what you owe is to request a free copy of your current credit report and credit score. Your credit report will detail your credit history and give you details concerning what you still owe creditors. From credit card debts and car loans to student loans and home equity loans, your credit report will clearly illustrate what your debt load consists of. You may also want to collect your recent credit card statements and records of your monthly bills, so that you can identify any accounts that are at risk of becoming overdue, even if they are not yet debts.

Determine Your Monthly Income

Once you understand the kinds of debts you’re responsible for and the total of those debts, it’s time to take a hard look at your income. If your income is insufficient to reliably allow you to make a monthly debt payment, debt consolidation may not be a good option for you. You may benefit more significantly from alternative forms of debt relief, like bankruptcy. To determine whether your income to debt ratio makes you a good candidate for debt consolidation, you’ll want to examine the sources of income you benefit from, how regularly you receive that income, and what its amount is. If you’re unsure of exactly how much income your household takes in every month, gather recent pay stubs, child support and/or spousal support figures, governmental benefits records, and other specific receipts of your regular income. Then calculate how much regular monthly income you benefit from and how much of your household income is received on an irregular basis.

Put Together Your Budget

Now that you have exact figures regarding your debt and your income, it’s time to budget. You may already have a household budget, but you’ll want to revise it with certain issues in mind to determine whether you should be pursuing debt consolidation options. You’ll need to account for both fixed costs that don’t fluctuate more than $10 or so with each monthly payment. Your fixed costs will likely include utilities, student loans, auto loans, and home equity loan payments or rent. You’ll then want to factor in variable costs that do fluctuate more than $10 each month, such as gas, food, and entertainment. In general, you’ll want to record these costs using an average of what you have spent in each variable cost category based on the last 2 or 3 months of activity recorded in your bank accounts and on your credit cards. Finally, you’ll want to identify costs that you don’t incur monthly but that are predictable, such as holiday gifts, school supplies, and car repairs. These expenses should be recorded by fractions. If an expense only comes up once a year (like auto tab renewal), take the expense and divide it by 12 to see what it costs you monthly. If it is a quarterly expense, divide each quarter’s cost by four.

Do the Math

You now have exact figures related to your income, debt, and household expenses. It’s time to determine how these numbers are affected by one another. The most basic calculation you’ll need to make involves determining whether your income stretches to cover both your monthly payments owed to your creditors (including personal loans) and your monthly household expenses. If so, you may want to consider debt consolidation because it will allow you to benefit from a low-interest rate tied to a single loan, a lower risk of multiple late fees, and a potentially lower monthly minimum payment than you would make on multiple accounts. If your income doesn’t cover both your debt payments and your household income, you may want to consider debt consolidation to make your loan payments more manageable and streamlined. It can be helpful to make a single payment each month and to concentrate your repayment efforts on that single debt. Approaching your debt management in this way may allow you to slowly but steadily raise your credit score over time. This process can also free you from oppressive high interest rates. However, if your expenses are so high that your income won’t cover a significant monthly debt payment at all, debt consolidation is probably not going to be a good option for you. Debt consolidation only works effectively when you can make reliable payments every month.

Review Your Alabama Debt Consolidation Options

If you decide to move forward with debt consolidation, you’ll want to weigh your loan options carefully before committing to a specific approach. Depending on your credit history and other financial circumstances, you may benefit from securing a credit card balance transfer, a personal loan, an unsecured debt consolidation loan, a HELOC, or setting up a debt management plan. Remember that this process is different from debt settlement, so if you come across a risky debt settlement plan or debt settlement company when researching loan options, “walk” the other way. When weighing your different options, keep in mind that higher interest loans will cost more to pay off in the long-run, if you’re only able to make the minimum payment due each month. Generally speaking, unsecured debt consolidation loans are generally the least risky, provided you work with a reputable company to secure them and your origination fee is reasonable. This approach will also help to ensure that you don’t unintentionally try to consolidate secured debt and other burdens that should be dealt with in other ways.

Apply for an Alabama Debt Consolidation Loan

When you formally apply for a debt consolidation loan, make sure that you understand the terms of the loan before you sign any legal paperwork. Also, ensure that the lender you’re working with is trustworthy before entering into a relationship. You may benefit from researching your lender’s reputation on the Alabama attorney general’s website, as well as websites for the Alabama consumer protection agency, and the Better Business Bureau. Also, make sure that you can afford your origination fee, as this isn’t an item you’ve budgeted for yet. If you’re using a personal loan to consolidate your debt, make sure that you and your “lender” are on the same page to avoid uncomfortable confrontations and spontaneous expectations later on.

How to Stay Current with Payments After Consolidating Your Debts in Alabama

Once your debt consolidation loan has been secured, it’ll be important to remain current with your payment schedule. When debtors fall behind on their home equity loans, credit card debts, and even their personal loans, they incur late payment fees, their credit scores suffer, and other consequences result. Falling behind on your debt consolidation loan will inspire the same kinds of negative effects. To avoid these challenges, schedule your payment due date for a time of the month when you’ll be best positioned to make your payment on time. Some individuals like to schedule due dates to coincide when they get paid, while others prefer dates that are easy to remember for other reasons. Setting up an automatic payment, or a payment reminder at minimum, can also help to ensure that you remain current on your consolidated loan account.

Alabama Debt Management Plan

One additional form of debt consolidation worth considering is an Alabama debt management plan. A debt management plan doesn’t require you to secure a new loan. Instead, your credit counselor will negotiate payment plans with your creditors, while possibly securing better interest rates and other benefits. Then, you’ll make a single monthly payment to the credit counseling agency, which will distribute your payment to your creditors per the repayment terms of your debt management plan.

Alabama Debt Settlement

If you struggle with bad credit and you’re concerned about your ability to secure an Alabama debt consolidation loan, you may want to consider debt settlement. Alabama debt settlement is a risky process because many debt settlement companies don’t operate with much integrity and it can be difficult to get all of your creditors to agree to participate in the process. However, if you have a manageable number of creditors and they are interested in cooperating, you can potentially benefit from significant reductions in your principal if you can pay your debts in single payments at this time.

Alabama Bankruptcy

Depending on the results of your budgeting efforts, you may conclude that your debt is so overwhelming that your income is insufficient to cover a reliable monthly debt consolidation payment or debt management plan payment. If so, filing for Alabama bankruptcy may be an excellent option for you. You may even be eligible to receive free assistance as you navigate the bankruptcy process. If you don’t earn much income, you may qualify to file for Chapter 7 bankruptcy, which will allow you to have your eligible debts (including medical bills, credit card balances, and other unsecured debt) erased in as few as 90 days.



Written By:

Attorney Kassandra Kuehl

LinkedIn

Kassandra is a writer and attorney with a passion for consumer financial education. Outside of consumer law, she is focused on pro bono work in the fields of International Human Rights Law, Constitutional and Human Rights Law, Gender and the Law. Kassandra graduated from Universi... read more about Attorney Kassandra Kuehl

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