How to Consolidate Your Debts in Iowa

Collect the Details About Your Debts 

In order to evaluate whether debt consolidation is a good option, you need to have a grip on the details of your debt load. The first step in tackling this project is requesting a free copy of your credit report. You can request one free copy each year from the three credit reporting bureaus. This document will clearly articulate your credit history (i.e., what your creditors have reported about you). It’s also a good idea to purchase your credit score, which is also available from the credit reporting bureaus. Knowing your credit score will help you estimate whether you will qualify for consolidation options that take this number into consideration. 

In addition to requesting your credit report, collect any recent statements or bills that you have received from any creditor that you are hoping to repay through debt consolidation (for example, student loans, car loans, medical bills, credit card debt, personal loans, old debt that was sent to collections). Create a spreadsheet and insert the name of all of your creditors. Then, insert the interest rate that you are being charged, the minimum monthly payments that you are required to make, and the current amount due. This spreadsheet will help you calculate the full amount of your indebtedness and help you compare the terms of any potential loans or workouts with your current payments.

Determine Your Monthly Income

Debt consolidation is generally a good option for people who have access to a steady income and who have the ability to cover their living expenses but have difficulty managing timely payments or are behind on some bills. This exercise is designed to calculate your take-home monthly income so that you can start crafting an accurate budget. When you do this exercise, only include income that is regular and reliable. If you overestimate your income, you may end up stretching your budget too thin each month to reliably cover the cost of your debt consolidation payments.

When reviewing your two most recent paycheck stubs, find the line item on your paycheck called “Net Pay”, and confirm that this number is representative of your usual income. In order to calculate your annual income (i.e., the amount you earn after taxes and payroll deductions), multiply your “Net Pay” by the number of times you are paid over the course of the year. For example, if you are paid weekly, multiply your “Net Pay” by 52. Or, if you are paid bi-weekly (every other week), multiply your “Net Pay” by 26.

Divide your annual income by 12 to find your take-home monthly income. If you sometimes earn a bonus, commission, or other income, your monthly income may actually be more than the figure you’re currently calculating. However, since the total of your reliable monthly income is the number you will use to determine whether you can reliably make debt repayments, it’s better to be conservative in your estimates than to come up short certain each months after factoring unreliable income into your assessment. 

Put Together Your Budget

Now it’s time to see where you are spending your money each month. This step is critical because the key to debt consolidation success is having a plan to reliably make a set payment every single month without running up additional debt.  

Your bank and/or credit card company may offer a tracking tool that can provide you with a summary of your transactions. Otherwise, begin by finding your last three months of credit card bills and bank statements and start analyzing your spending.

Open up the debt spreadsheet you recently created and start inputting your monthly costs (rent, mortgage, utilities, groceries, etc.) as a new column as you identify them. Do you see any expenditures that can be reduced or eliminated? If so, change that line item (realistically) to reflect your reduced budgeted cost. 

Your budget also needs to take into consideration certain bills that pop-up irregularly but predictably throughout the year, such as oil changes, medical co-pays, holiday gifts, etc. Try to identify these expenses, add them together, and divide by 12 to calculate the amount you need to set aside each month to cover those costs. Add-up the amount that you have allotted for your expenses to your monthly budget. Finally, in order to avoid being caught off-guard when an emergency hits, calculate 10% of your monthly budget and set it aside (preferably in a separate account) in order to account for the unexpected. 

Do the Math 

This next step will help you determine whether you have whittled down your budget enough so that you have enough income left-over each month to stick to your budget and make debt consolidation repayments on time, every time. Total all of the debt that you identified earlier. This number represents your loan amount. Since most Iowa debt consolidation loans have a loan term of five years, divide your “loan amount” by 60 (i.e., 12 monthly payments over five years) to calculate your monthly debt payment (without interest). Now, subtract your calculated monthly loan payment from your monthly income: with what remains, do you have enough to cover your expenses as outlined in your budget? If not, can you find other expenses and areas to reduce your spending? If you do have enough income to cover both your budget and estimated loan repayments, then an Iowa debt consolidation loan may be an excellent option for you to restructure and ultimately streamline your debt. 

Review Your Iowa Debt Consolidation Options

The range of debt consolidation options available to you will largely depend on your credit score and the type of debt you are carrying.

If you have high-interest credit card debt, a credit card balance transfer can help you save a lot of money, but only if you pay off your transferred balance before the introductory rate ends (otherwise, the card will revert to a much higher interest rate). In addition, note that many balance transfer credit cards charge a balance transfer fee of between three to five percent.

If you own a home, you can borrow against your property by applying for a home equity loan or by refinancing your mortgage. These loans offer the best interest rates and longest loan terms (up to 30 years), but they are risky because if you fail to make your loan payments, your lender can foreclose on your home. Also, the qualification process for a home equity loan is complex and includes extra fees, like charges for appraisals, origination fees, and legal fees.  

If you have good credit, you may be able to get a personal loan from a lender. Personal loans generally have fixed interest rates and a much lower rate than credit cards, but you may be charged an origination fee and penalty fees for late payments. You can use the borrowed money to pay off any type of debt, including car loans, credit card debt, and student loans.

If you don’t want to take out a new loan, some credit counseling agencies offer debt management plans, which allow you to submit a single monthly payment to the credit counseling agency, which then pays your creditors based upon an agreed payment plan. This option is viable even for individuals with poor credit scores. 

Apply for an Iowa Debt Consolidation Loan

Before engaging in business with a lender, it’s a good idea to do some homework and verify that the company is legitimate. You can search the Better Business Bureau for any complaints or contact an accredited Iowa credit counseling agency to discuss your loan or debt management plan options and to obtain additional resources. Unfortunately, there are boatloads of scam artists in the financial industry, so keep an eye out for any repayment terms that seem suspiciously good or vague. Also, if your adviser does any of the following, it should raise a red flag: (1) tries to charge you fees before settling your debt or debt management plan; (2) guarantees to 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. 

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

Consolidating your debt is a great first step towards becoming debt-free. However, the hardest part is what follows constructing your debt consolidation: making sure that you continue to stay current on your loan or DMP payments. The Upsolve team has pulled together a few of our favorite tips on how to stay motivated and on-budget:

• Automatic Loan Payments: Avoid late fees and surcharges by setting up automatic bill pay through your bank or lender. Just make sure that - whatever due date you choose -  you have sufficient funds in your checking account to pay your loan. It may help to stagger your loan payment and other significant expenses (rent or mortgage) a few weeks apart so that your bank account has time to recover.

• Monitor Your Spending: Hopefully, when you created your budget, you set realistic goals for yourself. Download one of the many budgeting apps that are available (Mint, Albert, YNAB, or EveryDollar) and use it to help you monitor your spending and keep track of your budget.  

• Create Two Accounts To Reduce Stress: Create two new accounts with your bank (an emergency fund and an indulgence fund) and have set amounts automatically transferred into these accounts each month. Your budget should have a line item for emergency issues and 10% should be set aside each month into your separate emergency account for unanticipated costs (like car repairs or medical emergencies). The second account will be your indulgence fund. Create a few goals for yourself and aside a small amount each month into this account. When you hit your milestones, you can use that money to reward yourself for your hard work. Both of these accounts will help you reduce stress since you’ll know that if anything unexpected happens, you have money set aside.