How to Consolidate Your Debts in Indiana

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Written by Upsolve Team.  
Updated January 28, 2020

Summary

The following exercise is designed to help you pull together the details of your finances so that you can determine whether debt consolidation is a good option for you. If you decide that debt consolidation isn’t a good fit, there are additional money management options discussed at the end of this article that may be more viable solutions for you.

If your debt has you feeling like you’re white-knuckle racing down the Indianapolis Motor Speedway and just barely avoiding spinning out, there are a few debt consolidation options available that may help you regain some control over your finances (and your anxiety).

Debt consolidation allows you to combine multiple high-interest unsecured debts into a single account (paid via single monthly payments) through either a loan or a structured repayment plan. The primary benefits of debt consolidation are two-fold. First, consolidation usually results in a lower monthly payment since many of the debt consolidation options available offer a way to negotiate or borrow at lower interest rates. Second, your monthly bills will be streamlined, as you’re only making a single payment for all of your combined debt. This should again result in cost savings because you will be less likely to miss a payment and be hit with late fees or surcharges.  

Debt consolidation comes in several forms, including personal loans, home equity loans, credit card balance transfers, and debt management plans. Alternatively, debt settlement companies may be able to negotiate with your creditors to accept a reduced amount in exchange for a lump-sum settlement. The option that will work best for you will depend upon your credit score, income, and the type of debt you owe. 

Learn More Through Free Nonprofit Credit Counseling

One of the best money management tools you can benefit from as you weigh whether debt consolidation is right for you is available to the public for free. When you meet with a nonprofit credit counselor, they will provide you with valuable information tailored to your specific financial circumstances. They will review your income, expenses, debt and your short-term and long-term goals. Then, you will work together to create a financial plan to tackle those goals. Before making an appointment, make sure that you are dealing with a nonprofit credit counseling organization accredited by the National Foundation for Credit Counseling to better ensure that you’re engaging with a legitimate operation instead of a scam.

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How to Consolidate Your Debts in Indiana

The following exercise is designed to help you pull together the details of your finances so that you can determine whether debt consolidation is a good option for you. If you decide that debt consolidation isn’t a good fit, there are additional money management options discussed at the end of this article that may be more viable solutions for you.


Collect the Details About Your Debts 

Off the top of your head, you probably have a good idea of how much debt you owe. But, to really understand your options, you are going to have to delve into the details of that debt. 

First things first, it’s a good idea to request a copy of your credit report. You can get this document for free on an annual basis from the three major credit reporting bureaus (Equifax, Experian, and TransUnion). This document illustrates what your creditors have reported about your credit history. For good measure, you may also want to request your credit score from the credit reporting bureaus. Once you have your credit report, collect the most recent bills or statements you have in connection with each of the credit lines listed. Brainstorm to identify any other debts that you may have outstanding but which don’t show up on your credit report (for example, personal loans to family members).

Now, create a spreadsheet and write down the names of all of your creditors. From the invoices you collected, insert the following information next to each creditor: (1) the type of debt you owe (student loans, credit card debt, other unsecured or secured loans, etc.), (2) the interest rate you’re being charged, (3) your minimum monthly payment, (4) your balance, and (5) whether you are up-to-date on the bill. If this information isn’t available from a creditor’s statement or your credit report, reach out to the creditor’s billing department for any missing details. From the list of debt, highlight those debts that you would ideally like to resolve through debt consolidation.

Determine Your Monthly Income

Now you need to determine your take-home monthly income. You will need this number to accurately assess how much of your income is dedicated to your living expenses and how much you have available for repaying your debts. As you go through this exercise, only include income that is both regular and predictable so that you don’t overestimate how much money you have available to pay your debts and expenses each and every month. If your primary sources of income are irregular because your work is seasonal or freelance, etc., you’ll want to evaluate only that income amount that comes in every month like clockwork

Collect your two most recent paycheck stubs, and review them. Is the income listed typical of your usual paycheck? Did you earn more or less than you usually do? Did you receive any overtime, bonuses, or commissions? Did you miss a day or have unusually large deductions? Look through your pay stubs until you find one that is representative of your usual earnings. On your paystub, there is a line item called “Net Pay”, which is the amount that you took-home after taxes and payroll deductions. In order to calculate your annual income, multiply your “Net Pay” by one of the following: (i) 52 (if you’re paid weekly), (ii) 26 (if you’re paid every two weeks); (iii) 24 (if you’re paid twice a month); or (iv) 12 (if you’re paid monthly). Then, divide your annual income by 12 to find your take-home monthly income. This is the amount that you have available for living expenses, savings, and debt repayment. 

Put Together Your Budget

Creating and sticking to a budget will help you make sure that you have enough income available to support your debt repayments and your monthly expenses simultaneously. 

If your credit card company or bank has a tracking tool, use it to provide you with a summary of your last three months of transactions. If you don’t have this option, you’ll have to go old school and dig up your last three months of credit card bills and bank statements. 

Open a new spreadsheet and start inputting your monthly costs (rent, mortgage, child care, groceries, utilities, entertainment, etc.). As you input these expenses, ask yourself whether you see any room for reduction (or elimination) of your regular expenditures. 

In addition to your monthly expenses, you’ll also need to identify your irregular bills, which occur predictably throughout the year but not every month (oil changes, holiday gifts, HOA assessments, etc.). Total your irregular expenses for the year as a whole and divide by 12 to calculate the amount you need on a monthly basis to cover those costs. 

Tally all of your categories of expenses to calculate your monthly spending. Finally, add another 10% to that number in order to account for any emergencies that may occur. This final calculation represents your monthly budget and it should account for all of your spending.

Do the Math 

Now you need to pull all of your work together. Begin by adding together all of your monthly expenditures and compare that amount to your take-home monthly income. Do you have any money left-over?  If so, debt consolidation may be a particularly good option for your financial situation. If not, revisit your budget and see if there are any expenditures that you can reduce or eliminate. 

Next, you need to see what your approximate loan payments will look like. Go back to the spreadsheet and find your total debt. Then, divide by 60 to get a rough estimate of how much your monthly payment would be if you were to pay off the total debt balance, without interest, in five years (or use 120 if you want to consider a loan term of ten years). 

Review Your Indiana Debt Consolidation Options

If your income can consistently cover monthly debt consolidation payments, it’s time to choose your approach. The best debt consolidation option for you (balance transfer, home equity loans, personal loans, unsecured debt consolidation loans, or a debt management plan) will likely depend upon your credit score, the type of debt you owe, and whether you have any personal property to secure a loan.

If you don’t want to take out a new loan, you can work with a nonprofit credit counseling agency to negotiate with your creditors and create a repayment schedule. These debt management plans usually run from three to five years, and the credit counseling agency may be able to get creditors to reduce your interest rate and waive certain fees. 

If you have a good credit score, you may qualify for a balance transfer credit card, which allows you to transfer your high-interest credit card balance to a new low-interest (perhaps even 0%) line of credit. Read the fine print of any balance transfer offers because some balance transfer credit cards charge a transfer fee, while others have promotional rates that expire quickly and adjust to higher, variable rate. 

Some lenders also offer personal loans that can be used to pay off any type of debt (auto loans, credit card debt, medical bills, student loans, tax debts, etc.). These personal loans are easy to apply for, have a quick turn-around time, and typically offer fixed interest rates at a lower rate than the rate charged by credit card companies. Note that you may be charged an origination fee, application fee, or be assessed penalty fees for late payments and you likely won’t qualify for this type of loan if your credit is already significantly damaged. 

If you own a home, you may qualify for a home equity loan or a refinance of your mortgage, which allows you to borrow against the value of your property at a low-interest rate. This type of loan (a secured loan) usually has the most preferential repayment terms: long loan terms (up to 30 years) and the lowest interest rates, but you may be charged expensive closing fees (appraisal fees, origination fees, legal fees, etc.). Also, home equity loans and mortgages are risky because if you fail to make payments, the lender may foreclose on your home. 

Apply for an Indiana Debt Consolidation Loan

If you’ve determined that you have room in your monthly budget to make debt repayments, then an Indiana debt consolidation loan or debt management plan may be in the cards for you. Before you start working with any financial partner, you can search the Better Business Bureau for any complaints about a company or contact an accredited Indiana credit counseling agency to discuss your loan or debt management plan options. The Better Business Bureau advises consumers to avoid any lenders who try to charge you fees before settling your debt or debt management plan or who guarantee that they can wipe out your debt for a fraction of the cost. Finally, make sure that you understand all repayment terms (and ensure that these terms are actually better than those you are currently paying) before signing on the dotted line. 

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

Successful debt consolidation and repayment requires you to make appropriate and timely payments. Upsolve recommends that you consider the following steps when planning to stay ahead of your monthly debt obligations.

  1. Use your bank’s free automatic bill pay to schedule automatic monthly payments, which will help eliminate the possibility that you will make a late payment and incur unnecessary charges. 

  2. Continue to analyze your spending habits. If you’re still having trouble curbing your spending, try withdrawing a set amount of cash each week for your discretionary expenses. 

  3. Don’t forget to plan for emergencies: plan to set aside money each month and automatically place it into an “emergency fund.” Having this fund should give you some peace of mind that - if the truly unexpected occurs (like a medical issue or vet bill) - you have the funds to attend to the problem.  

  4. Reward yourself. Budgeting is hard work, and having something to look forward to can keep you in a positive frame of mind and help you to avoid feeling depleted and deprived. Set a few milestones or goals for yourself, and then reward yourself (in moderation) when you reach those goals.

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Indiana Debt Management Plan

Certain credit counseling agencies offer debt management plans (DMP). To construct a DMP, your credit counselor will work with your creditors to design a repayment schedule spanning three to five years. Each month, you’ll send a single payment to your agency, which will then distribute money to your creditors based upon the set schedule. Once you establish a history of reliable payments, your creditors may agree to charge a lower interest or forgive old late fees. Since there is no credit score requirement, an Indiana DMP may be a good option for consumers who can’t qualify for a debt consolidation loan or credit card balance transfer. 

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Indiana Debt Settlement

Another way to resolve your debt is through the debt settlement process. Instead of combining and paying off your debt through a debt consolidation repayment schedule, a debt settlement company will try to negotiate with your creditors to accept a lump-sum payment for the forgiveness of your debt. The process can be risky because your creditors don’t have to accept less than what you owe. Negotiating an Indiana debt settlement can take several months (or even years!) and some debt settlement companies aren’t trustworthy. Make use of the tips above before hiring any company to negotiate on your behalf.

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Indiana Bankruptcy

If you’ve determined that your monthly income won’t support a restructured payment plan, then filing for Indiana bankruptcy might be your best bet for getting out from under the weight of your debt. While filing for bankruptcy can impact your credit score, it can also provide valuable protections against creditor harassment and seizure. Most importantly, the bankruptcy process can help you make a fresh financial start. The process can be complex, and not all debt can be forgiven (like taxes and student loans), so make sure that you get assistance from competent advisers before deciding whether to file an Indiana bankruptcy. 

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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