How to Consolidate Your Debts in Georgia

Collect the Details About Your Debts

In order to really evaluate whether debt consolidation is a possibility, you have to have a grip on the full amount of your debt. What creditors are you aware of? Think broadly: do you have student loans, car loans, medical bills, credit card debt, personal loans, or other secured or unsecured loans? Do you know the full amount that is due? Can you think of any other debt that may be floating out there (i.e., do you have any bad debt that was sent to collections or are you aware of charges that haven’t yet been billed to you)?

The first (and easiest) step you can take to collect information about your debt load is requesting a copy of your credit report. This document is available for free from the three credit reporting agencies and will spell-out your credit history and what your creditors have reported about you. Really take the time to review your credit report because you may find that some of the reporting is inaccurate or that you had forgotten about certain creditors. While you’re delving into your credit history, you can also check-out your credit score by paying a fee to the credit reporting agencies or through your credit card company. 

In addition to your credit report, collect any recent statements or bills that you received from any company that you are hoping to repay through debt consolidation. Write down the interest rate that you are being charged, the monthly payments that you are required to make, and the current amount due. You’ll use this information to calculate the full amount of your indebtedness, as well as to compare the terms of any potential work-outs or loans.

Determine Your Monthly Income

Once you’ve calculated your total debt, the next step to evaluating debt consolidation is figuring out your actual take-home monthly income. Knowing how much you earn each month will help you determine precisely how much of your income is dedicated to repaying your debts and how much you truly have available for living expenses. Generally speaking, if your debt accounts for more than 40% of your take-home pay, then loan consolidation may not be a great option unless your monthly payment can be reduced to below that threshold. As you go through this exercise, only include income that is regular so that you are not overestimating how much money you have to use in your budget. This includes alimony and child support: if you can’t reasonably rely on the source of money each month, do not count it in your calculated monthly income. 

If you are a salaried employee, you can calculate your net monthly take-home pay by using the following formula: (1) divide your annual salary by 12 to find your gross monthly income, and then (2) multiply that amount by 0.8 to find your after-tax monthly income (this takes into consideration an estimated effective tax rate of 20% for your combined federal and Georgia income taxes). For example, if your annual income is $60,000 a year, divide that by 12 to get $5,000 a month, and multiply that by 0.8 to get your after-tax monthly income of $4,000.

Figuring out your net monthly income is more complex if you are an hourly wage earner. Pull-out several of your most recent paystubs and see how many hours you clock each week. Have you been working a lot of overtime or more hours than normal? If so, use your best estimate of how many hours - on average - you really work each week. Take your hourly wage, multiply it by your estimated weekly hours, and then multiply that number by 52. You now have your estimated annual salary. Now, follow the same formula as above: divide your annual salary by 12 to find your gross monthly income, and then multiply that amount by 0.8 to find your after-tax monthly income. As an example, if you are paid $18 an hour, and you usually work 35 hours a week, your math would look like this: ($18)x(35) = $630 / week. Multiplied by 52 gets you an annual gross income of $32,760. Divide by 12 to get an estimated gross monthly income of $2,730, and multiply by 0.8 to get an after-tax monthly income of $2,184. 

Your monthly income may actually be higher than what you calculated if you earn the occasional bonus, overtime, or commission. That’s good news because the keys to debt consolidation are making sure that you do not take on new debt and making a set payment every single month, reliably. That means, if you earn extra money every few months, that money can be set aside for an emergency fund or additional debt payments. The trick is to be accurate but conservative in your estimates so that you don’t end up setting a budget that you can’t stick with. 

Put Together Your Budget

Now that you’ve made the decision to work toward debt relief, setting your budget is where the rubber meets the road. Successful debt consolidation requires that you have your spending habits under control and avoid taking on new debt. Taking a long look at where and when you spend your disposable income will help you determine if your monthly income can support paying off your debt or if other financial options are more appropriate.

A good place to start your analysis is by reviewing your last few months of credit card and bank statements. Many banks or credit card companies actually offer a tracking tool, which will create a report for you that shows you where you are spending money. Categorize your spending into: (1) fixed costs (those bills that don’t really fluctuate each month, like rent, internet services, health insurance, etc.); and (2) variable costs (bills that can vary widely from month-to-month, like gas, utilities, and groceries). As you review these costs, think about whether there any monthly bills that you can reduce or eliminate. 

Then, add-up the amount that you have spent on your fixed and variable costs over the past three months and divide by three to reach your average monthly spending. Hopefully, using a three-month lookback will allow you to capture in your estimate the cost of irregular expenses, like oil changes and co-pay charges, that don’t occur on a monthly basis. And, because unanticipated costs happen in life (your car breaks down or you chip a tooth), add another 10% to your monthly spending total so that you aren’t caught off-guard when emergencies occur. This will be your monthly budget as you move forward.  

Do the Math

Now, let’s determine what, if any, monthly income you will have left after you deduct your monthly budget and debt payments. Find the total of the debts that you identified in Step 1. Because most debt consolidation loans have repayment terms of five years, divide your total debt amount by 60: this will be your estimated monthly loan payment in a best case scenario of 0.00% interest. If you deduct your monthly budget and loan consolidation payment from your monthly income, are you still in positive numbers? If so, a Georgia debt consolidation loan may be an option for you to refinance your debt. If you find that you don’t have any disposable income left after these deductions, you may wish to revisit your budget and see if there are any expenses that you can significantly lower or completely eliminate. 

Review Your Georgia Debt Consolidation Options

Debt consolidation can be accomplished through several different avenues, such as a credit card balance transfer, home equity loans, personal loans, unsecured debt consolidation loans, and debt management plans. Your consolidation options will largely depend on your credit score, the type of debt you owe, and whether you have any collateral (or personal property) to secure a loan.

You’ve probably received notices in the mail or your inbox from credit card companies offering you a line of credit and the ability to transfer other credit card debt at a much lower rate, perhaps even at zero percent. If you have a good credit score and the bulk of your debt is related to credit card debt, then this may be a good option for you. Be careful to check the fine print and to run your numbers. Some credit cards charge a balance transfer fee and other offers have such a short introductory period that you may not be able to pay off the balance before the rate increases. See if you can figure out what your minimum payment will be after your balance transfer and make sure that you can pay that amount, plus a little extra each month: you don’t want to simply exchange one high-interest debt for another. 

If you own a home, you may be able to pull some money out of your property through either a refinance of your mortgage or a home equity loan. Both of these types of loans can be risky because if you default, you could be in danger of losing your home. Also, because mortgages and home equity loans have lengthier loan terms, you may end up paying more in the long run since you will be paying interest on the full loan amount. This type of loan tends to provide the best interest rate, but is also the most administratively expensive and will likely include charges for an appraisal, origination fees, legal fees, and recording fees.  

If you don’t have a home or other personal asset, you may be able to qualify for an unsecured Georgia debt consolidation loan. These types of loans are relatively easy to apply for (you can actually apply online through some banks and online lenders) and don’t require much paperwork, but you will likely need to meet a minimum credit score, have a debt-to-income ratio that doesn’t exceed 50%, and be charged an origination fee. If you qualify, you will be able to aggregate different types of debt (auto loans, credit card debt, medical bills, student loans, personal loans, etc.) into a single monthly payment.

Apply for a Georgia Debt Consolidation Loan

Before engaging in business with a lender or a debt settlement company, make sure you do some homework and verify that they are legitimate. Trust your gut when you talk to the representative: if they are being aggressive or offering loan terms that seem too good to be true, there is likely some fine print that makes the deal problematic. In fact, the Better Business Bureau of Georgia has advised consumers to avoid any debt relief organization that: (1) charges your fees before it settles your debt or debt management plan; (2) guarantees that they can make your debt go away for pennies on the dollar; (3) tells you to stop communicating with your creditors; or (4) refuses to send you free information and a copy of the contract. You can check with the Better Business Bureau to ensure that your financial partner is trustworthy. You can also speak to an accredited Georgia credit counseling agency (look for an agency that’s a member of the National Foundation for Credit Counseling) in order to discuss your loan or debt management plan options and to obtain additional resources.  

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

Once you’ve consolidated your debts and designed a plan to get out of debt, the hard part will be sticking with your plan. To make sure your debt consolidation works, you can use the following strategies to eliminate possible obstacles to your success.

First, schedule your loan payment for a due date that makes sense to you. If you know you get paid each month on the first and the fifteenth, then maybe you want to plan on paying your loan on the third or eighteenth. That way, you should have money in your bank account when it’s time to pay your lender. In fact, make it even easier for yourself: set-up automatic monthly payments through your bank or your lender so that your loan payments are always timely. 

Second, make a habit of scrutinizing your spending. Warren Buffett, one of the world’s wealthiest people, is quoted as saying, “If you buy things you do not need, soon you will have to sell things you do need.” Buffett is a billionaire many times over, but he is also famously frugal (he lives in the same home he purchased more than 50 years ago). So, ask yourself before buying something: is this a need or a want? Can you get it for less somewhere else? Would Warren approve of this purchase?   

Third, if possible, set aside some money each month for a separate “emergency fund” and try not to touch this money unless there is an actual emergency. This way, you will have some money if you are blindsided by an unexpected expense, and you will be more able to avoid the temptation of taking on new debt. 

Fourth, make sure to reward yourself for your hard work! Set some milestones and indulge yourself (with moderation) when you reach those targets. Just because you have debt, doesn’t mean you have to deprive yourself of the activities and events that bring you joy but cost money. If you do, you will feel frustrated and miserable, which may lead you to abandon your debt relief plans. It takes a great deal of effort to complete a debt consolidation program, and you should encourage yourself to feel proud of your accomplishment.