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How to Consolidate Your Debts in California

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In a Nutshell

If you want to know more about whether debt consolidation may be right for you, you can carefully examine your finances for positive or negative indicators. If you ultimately choose to pursue debt consolidation, you’ll need to choose an approach to the process that is right for your financial situation.

Written by Attorney Kassandra Kuehl
Updated December 14, 2019

If you’re struggling to pay the minimum payment on each of your debts while meeting your household expenses each month, you may benefit from debt consolidation. Most of the time, debt consolidation works to streamline your loan payments by merging each of your debts into a single loan. You can then focus your debt repayment efforts on one monthly payment, which will likely have a lower rate of interest and minimum payment due than the sum of the monthly payments you’re making on your debts now. This process will allow you to avoid multiple late fees each month, as you’re only ever risking one late payment. Additionally, when you make your California debt consolidation loan payments on time, you’ll improve your credit history, which will help you gradually raise your credit score. You have a few consolidation options to choose from. However, most Americans choose to use a new line of credit as a balance transfer. Whether they use a personal loan, a home equity loan, a credit card balance transfer, an unsecured debt consolidation loan, or an alternative loan option, they use that single line of credit to pay their existing debts. That way, they’re left with a single California debt consolidation loan in place of all the previous debts that were merged into one loan amount.  

Learn More Through Free Nonprofit Credit Counseling

As beneficial as debt consolidation can be, it’s not the best debt management option for everyone. To better ensure that you’re making an informed decision before you commit to debt consolidation, you may want to schedule a free credit counseling session with a certified credit counselor. You don’t need to meet any prerequisites to take advantage of this no-cost service. Simply call an accredited, nonprofit credit counseling agency in your area of California and ask if it provides a free credit counseling session. You’ll be asked about your debts, income, expenses, and financial goals. At the end of your meeting, your credit counselor will give you unique financial recommendations based on your circumstances. This action plan may or may not recommend that you pursue debt consolidation. You can then make an informed decision about which steps you want to take next. 

How to Consolidate Your Debts in California

If you want to know more about whether debt consolidation may be right for you, you can carefully examine your finances for positive or negative indicators. If you ultimately choose to pursue debt consolidation, you’ll need to choose an approach to the process that is right for your financial situation.

Collect the Details About Your Debts

You can’t consolidate your debts until you evaluate the types of debt you owe, whether most are unsecured debt (as it rarely makes sense to consolidate secured debt), and their loan terms. Make sure to account for all of your debts, even ones it might not make sense to consolidate. You’ll need to account for all of their minimum monthly payments when looking at your budget and determining whether you can afford to make a monthly payment on a consolidated loan in addition to all of your other monthly bills (including unconsolidated debts). Do you have student loans, credit card debt, home equity loans, auto loans, medical bills, personal loans, or other debt? If you don’t have all of this information already at your fingertips, take a few minutes to request a free copy of your credit report. This report will confirm both your credit score and all of your debts in one spot.

Determine Your Monthly Income

To effectively assess whether debt consolidation makes sense for your unique financial circumstances, it’s important to evaluate what you earn, what you owe, and your spending habits for an average month. By looking at a few months’ worth of data, you can get a strong sense of these three primary financial influences and how they impact each other. When gathering information about your income, make sure to note which sources are steady and which are irregular. If you can’t reliably make a California consolidated debt loan payment each month like clockwork, debt consolidation might not be the best option for you. Unfortunately, if most of your income is irregular, it may be difficult to make your debt payments on time, every time. You may be able to benefit from other forms of debt relief or you may benefit from debt settlement. But if your income is unreliable, you may need to think very carefully before committing to debt consolidation specifically.

Put Together Your Budget

When faced with the dilemma of deciding whether to purchase necessary food, gas, and medicine or to make a debt payment on time, most Americans understandably prioritize their immediate needs. It’s therefore important to create an accurate budget of your household expenses before evaluating whether your income can stretch to reliably cover the cost of a monthly consolidated loan debt payment. When budgeting for your household expenses, note all of your fixed expenses that don’t change from month to month (rent, car insurance, trash collection, etc.). You’ll also need to note unfixed expenses that do fluctuate monthly (food, gas, seasonal utilities, entertainment, etc.). Finally, you’ll need to account for predictable expenses that occur annually but not every month. For example, you need to renew your car registration once annually if you own a vehicle. If that registration costs $125, divide that annual cost by 12 to determine how much to budget for that expense monthly.

Do the Math

To determine whether you can reliably cover the cost of a consolidated loan debt payment monthly, compare your income to your debt and household expenses. If your minimum debt payments dramatically overshadow your reliable income, refinancing may not be your best option. You may make more progress with your finances and your credit score in the long-run by pursuing bankruptcy or another debt relief option. However, if your reliable income can stretch to cover both your expenses and a reasonable monthly consolidated debt payment, debt consolidation may be an excellent option for you. Keep in mind however, that if you’re likely to go right back into debt by opening new lines of credit after you’ve consolidated your existing debts, you should probably wait to consolidate until after your debts have stabilized. 

Review Your California Debt Consolidation Options

If you’re ready to consolidate your debt, it’s important to weigh your options carefully before committing to an approach. Depending on your circumstances, you may be able to consolidate your debt using a home equity loan or HELOC, a credit card balance transfer, a personal loan, a debt management plan, or an unsecured debt consolidation loan. Each of these approaches has potential benefits and downsides, depending on your financial situation. For example, if your mortgage history is stellar, you may be able to take out a home equity loan with a low-interest rate and low origination fee with relative ease. However, this type of loan is tied to a risk of losing your home if you default on your repayment terms. In general, unsecured debt consolidation loans with low-interest rates and modest origination fees are the least risky. However, you’ll need to evaluate whether this option is the best for you and your personal finances.

Apply for a California Debt Consolidation Loan

If you’re not securing a personal loan, entering into a debt management plan, or using an existing credit card debt account to secure a balance transfer, you’ll need to formally apply for a new line of credit. Make sure to research your lender’s reputation before you sign a contract or hand over any fees. Unfortunately, like many debt settlement companies, many debt consolidation providers are scammers and should be avoided. You may want to begin your research on the website of the Better Business Bureau or the California Department of Consumer Affairs. If your lender has been cited for consumer protection infractions, you should be able to track them down here.

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

Once your debt is consolidated, it’s critically important to honor the terms of your repayment schedule. Just as your credit history and credit score takes a hit every time you miss a student loan payment or turn in a mortgage payment late, your credit history and score will be negatively affected if your consolidated loan payments aren’t kept current. When setting up your consolidation loan, make sure to choose a due date that allows you access to enough income to cover the payment each month. Also, you worked hard to create a budget recently. Take care to update that budget as your personal finances change so that you can anticipate financial peaks and valleys before they occur. Knowing when you may need to adjust your finances to make payments on time is often half the battle.

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California Debt Management Plan

If you’re concerned that your low credit score may keep you from securing a new line of credit, you may want to work with a nonprofit credit counseling agency to negotiate a consolidation option known as a debt management plan. A credit counselor can help you construct a California DMP by negotiating a new payment plan (ideally with a lower monthly payment and a lower interest rate than you’re currently paying) for every debt you want to consolidate. You’ll then send a single monthly payment to the agency, which will pay each of your creditors per your repayment terms.

California Debt Settlement

If neither securing a new loan nor negotiating a debt management plan is a viable option for you but you do have access to significant funds right now, you may want to look into debt settlement. Debt settlement works well for individuals who have bad credit, relatively few creditors, and enough funds that they can pay a significant portion of their debt in lump sums. If you pursue California debt settlement, you’ll work with a debt settlement company to secure forgiveness for a fraction of your debt in exchange for paying the remainder of your total amount due in a single payment.

California Bankruptcy

 If you don’t have the funds to make debt settlement work or the income to make debt consolidation a viable option for your financial situation, it might be time to think about California bankruptcy. Filing for bankruptcy can serve as a life-changing debt relief option for individuals and families, especially if they don’t earn much income and are struggling to make ends meet. Researching the bankruptcy process can be intimidating, but if you could significantly benefit from filing, it’s an option worthy of your consideration. 

Written By:

Attorney Kassandra Kuehl


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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