How to Consolidate Your Debts in Washington, D.C.
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If debt consolidation seems like an intriguing option, you’ll want to do some research before committing to the process. You’ll want to carefully examine your finances and your loan options before deciding that debt consolidation is a process worthy of your consideration.
Written by Attorney Kassandra Kuehl.
Updated August 27, 2024
If you feel like your debt is starting to spiral out of control, there are resources available that can help you to get back on track with your financial goals. For example, if your income allows you to reliably pay for your household expenses and some of your debt payments but not all of them, the debt consolidation process may be an excellent option for you. Debt consolidation works by combining your loans in a way that allows you to make one monthly payment on those balances instead of paying multiple accounts. This transition can be helpful in numerous ways. First, it streamlines your debt payments so that you can concentrate on paying down a single loan instead of many at once. You’ll also risk fewer late fees because you’ll have fewer opportunities to make late payments. Second, paying down this single loan payment in-full and on time will help you raise your credit score and improve your credit history over time. Third, securing a Washington D.C. debt consolidation loan often leads to a better interest rate and lower minimum amount due than your current debt-related monthly bills are now. Although debt consolidation isn’t the best financial solution for all debt-related challenges, it can be a very helpful process under certain circumstances.
Learn More Through Free Nonprofit Credit Counseling
If you’re unsure of whether debt consolidation is right for you, you may want to schedule a free credit counseling session with a certified credit counselor. You can schedule a free, initial credit counseling session at many accredited, nonprofit credit counseling agencies located in and around the District. The purpose of this free session is to allow a credit counselor to evaluate your unique debts, expenses, income, goals, and challenges so that they can make personalized recommendations regarding the personal finance resources and steps you may most benefit from. You’re under no obligation to follow these recommendations, but as long as you work with a reputable, certified credit counselor, the guidance you receive will be sound. Depending on your circumstances, this guidance may include a recommendation to explore debt consolidation.
How to Consolidate Your Debts in Washington, D.C.
If debt consolidation seems like an intriguing option, you’ll want to do some research before committing to the process. You’ll want to carefully examine your finances and your loan options before deciding that debt consolidation is a process worthy of your consideration.
Collect the Details About Your Debts
When was the last time you requested a free copy of your credit report? If it has been more than a few months since you took this step, you’ll want to do it now. You won’t be able to effectively assess whether debt consolidation is right for you until you gather detailed information about your debts. From medical bills to student loans, auto loans to home equity loans, personal loans to credit card debt, you’ll need a detailed breakdown of it all before you can move forward with your decision-making process. Your credit report will provide much of the information you need, including what you owe and how much you owe. You’ll need to track down information about your interest rates and personal loans from your individual accounts and records, but accessing your credit report for free will give you a good place to start, even if you don’t end up paying to get your credit score at the same time.
Determine Your Monthly Income
Does your income adequately cover your debts? Your kneejerk reaction to that question may be “Absolutely not.” However, you won’t know just how far you are from being able to make reliable monthly payments on your debts until you assess your income and your expenses. When examining your income, make a note of which income sources are reliable and which aren’t. For example, your wages may be fixed. If so, you’re able to count on the exact same paycheck every pay period. However, you may also have income in the form of spousal support (also known as alimony) that isn’t paid consistently. It’s important to take reliability into account when assessing your income because if you can’t count on a specific income source to be available each month, you may run into trouble when trying to pay your Washington D.C. debt consolidation loan on time.
Put Together Your Budget
Understandably, most Americans focus on paying their necessary monthly expenses before paying down their debt. For obvious reasons, putting food on the table and gas in the car are usually prioritized over student loans, credit card debt, and car loans. It’s therefore important to explore your spending habits before determining whether debt consolidation is right for you, as these expenses will probably be prioritized over timely payment of your consolidation loan if you’re compelled to choose which financial burden receives your attention first. There are many free online tools designed to help you budget your expenses. You may prefer to use Mint, Albert, a spreadsheet, or traditional pen and paper to make your budget. No matter how you track your expenses, make sure you factor in irregular but predictable expenses (like oil changes and school supplies) in addition to the ones that you’re responsible for every month.
Do the Math
Now that you have a detailed accounting of your spending habits, debts, and income, it’s time to see how these numbers interact. Start by simply adding your monthly expenses to your monthly minimum payments due for each of your debts. Is your income larger or smaller than this total? If your income is larger than the total, know that you can still benefit from debt consolidation in many ways. Most notably, it streamlines your debt payment process by allowing you to focus on paying down a single account, you will likely benefit from a lower monthly payment and a low-interest rate. If your income does not exceed your expenses and minimum debt burden, debt consolidation could also benefit you in these ways. Making your loan payments reliably could also help you achieve good credit. Note however, that if your minimum debt payment amounts and expenses dramatically exceed your income, you probably can’t make reliable payments on a consolidation loan. In this situation, you may benefit more significantly from exploring alternative debt relief options, like filing for bankruptcy or a reputable debt settlement program.
Review Your Washington, D.C. Debt Consolidation Options
If consolidating your debt is a good option for you, it’s time to decide whether you’re going to secure a personal loan, a home equity loan, an unsecured debt consolidation loan, an alternative loan, or you’re going to work with a nonprofit credit counseling agency to enter into a debt management plan. A debt management plan doesn’t require you to take out a loan as it involves restructuring your repayment terms with your creditors. This option is discussed further below. Chances are that you’d prefer to secure a zero-percent or low-interest loan to act as a balance transfer. If you can secure a personal loan (and that arrangement isn’t going to stress your relationships too much), that can be nice because you won’t incur an origination fee. If a home equity loan isn’t likely to endanger your homeownership, this can be a relatively straightforward way to secure credit, as long as your monthly payments and origination fees aren’t too high, and your loan terms are fair. You can even explore the possibility of using a credit card balance transfer if you have a credit card with a sizeable limit and a low-interest rate. However, you’ll likely want to compare the risks and benefits of securing an unsecured debt consolidation loan with any of these alternatives before you commit to a debt consolidation plan. When an unsecured debt consolidation loan’s lender is reputable, this option tends to be the least risky option for most people.
Apply for a Washington, D.C. Debt Consolidation Loan
If you’re not securing a personal loan or entering into a debt management plan, you’re going to need to secure a new loan to act as a balance transfer for your debt consolidation process. It’s important to research the reputation of any lender you’re thinking about working with. Unfortunately, scammers often target Americans seeking to consolidate their debt. It’s therefore a good idea to go on the Better Business Bureau website and the website for the D.C. attorney general to see if any lender you’re considering has been cited for unacceptable behavior. If the consolidation option you’re presented with has a higher interest rate than your current loans do, if the transfer fee amount is unreasonable, or your lender is unnecessarily aggressive in “selling” you your loan, consider working with an alternative lender.
How to Stay Current with Payments After Consolidating Your Debts in Washington, D.C.
Once your debt is consolidated, it’ll be important to keep up with your repayment schedule. If you submit a late or incomplete loan payment, that action will affect your credit history and your credit score in the same way that a late mortgage payment or inadequate student loan payment would. Try to be as proactive as possible when budgeting for your payments. You’ll be well served by keeping the budget you just made as current as possible. When your budget always reflects recent changes in income, expenses, and minimum debt payments, you’ll know immediately if your math “isn’t adding up” and adjustments need to be made
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Washington, D.C. Debt Management Plan
A debt management plan allows individuals to consolidate their debt without having to secure a new loan. If you take this approach to debt consolidation, you’ll need to work with a reputable, nonprofit credit counseling agency to put your plan in place. A credit counselor will negotiate new payment plans with each of your creditors willing to participate in your Washington D.C. debt management plan. These payment plans may have lower interest rates and may waive recent late fees. Once your plans are in place, your debt will be consolidated by the agency. You’ll then pay a single monthly payment to the agency, which will distribute your debt payments to your creditors.
Washington, D.C. Debt Settlement
Unlike debt consolidation, debt settlement requires you to pay significant fractions of your debts at once. Rather than taking out a Washington D.C. debt consolidation loan out to make your monthly payments more manageable, you’d work with a debt settlement company to negotiate single payment repayment terms with each of your creditors. In a successful Washington D.C. debt settlement, a debt settlement company will convince your creditors to settle your debt by allowing you to pay a sizeable portion (but not the total amount due) of your current overdue balance. Most of the time, debt settlement results in the closure of the settled account.
Washington, D.C. Bankruptcy
If your minimum payments on your debts are so significant that debt consolidation doesn’t make sense for your financial situation, it may be time to consider filing for bankruptcy. The bankruptcy process can be intimidating, but if you don’t earn much income, you may be eligible for no-cost filing assistance. Having access to informed resources can make achieving debt relief through bankruptcy more manageable. Depending on your circumstances, investing in Washington D.C. bankruptcy relief now may ultimately help you repair your credit history, earn a solid credit score, and become debt-free.
