How to Consolidate Your Debts in Kentucky

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Written by Upsolve Team.  
Updated February 11, 2020

Summary

The next few sections are designed to walk you through the debt consolidation process so that you can determine whether this debt relief solution is an option for you. If you determine that debt consolidation is not a fit for your financial situation, the remainder of the guide also provides a brief overview of alternative debt relief options.

Getting out of debt doesn’t need to be as difficult as winning a straight exacta at Churchill Downs. If you have your spending under control, but your creditors are causing you stress and you’re looking for a way to become debt-free, then debt consolidation may be an excellent solution to your current financial challenges.

Debt consolidation is accomplished by pooling your debt (medical bills, credit card debt, etc.) from your creditors, and then paying off that combined balance via a single monthly payment on that combined debt. Debt consolidation can be hugely beneficial in two ways. First, your monthly bill payment routine will be much easier because you’re only submitting one monthly payment for that combined debt (instead of multiple payments to different companies). Plus, since you don’t have to worry about keeping track of multiple due dates, you should be able to avoid being charged late fees or penalty interest rates. Second, debt consolidation can help you save even more money since many of the options available offer a lower rate of interest than you’re currently paying.  

Debt consolidation comes in several forms, including entering into a debt management plan, taking out a personal loan or home equity loan, or accepting an offer for a credit card balance transfer. Outside groups, like credit counseling agencies, may be able to provide assistance in helping you create a debt management plan or negotiate down the principal of individual debts. The type of debt you have and your credit score will determine what type of Kentucky debt consolidation option best suits your situation. 

Learn More Through Free Nonprofit Credit Counseling

Since everyone’s financial situation is different, a great first step to understanding your options is meeting with a credit counselor for free. Together, you can work to create an action plan to achieve your financial goals, and your credit counselor may even connect you with additional resources, like budget counseling or services for creating a debt management plan. A word of caution: before you sit-down with anyone, verify that you have chosen a reputable credit counseling organization to advise you. You can check with the National Foundation for Credit Counseling, which maintains a list of accredited nonprofit credit counseling agencies, to be sure that you aren’t dealing with an imposter “counselor.” And - most importantly - your initial credit counseling session should be free, so if a company is trying to charge you for this service, you should go elsewhere for a free credit counseling session. 

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How to Consolidate Your Debts in Kentucky

The next few sections are designed to walk you through the debt consolidation process so that you can determine whether this debt relief solution is an option for you. If you determine that debt consolidation is not a fit for your financial situation, the remainder of the guide also provides a brief overview of alternative debt relief options.


Collect the Details About Your Debts 

The first step you’ll need to take before you can make an informed decision about your options involves getting a grip on the full amount and details of your debt. You can start this exercise by brainstorming and jotting down the name of your creditors and the type of debt you owe to them. For example, do you owe money for student loans, car loans, credit card debt, a home equity loan, overdue mortgage payments, personal loans, medical bills, or other unsecured loans? If only some of these debts are overdue or overwhelming, identify which of those debts you would like to fully resolve through loan consolidation.   

Next, gather your most recent statements for the debts you hope to consolidate. Create a spreadsheet and, using information from those statements, insert the following details about each debt: the interest rate that you are being charged, the monthly payments that you are required to make, and the current amount due. 

Lastly, you should request a free copy of your credit report from the three credit reporting bureaus (Equifax, Experian, and TransUnion). This document will show you what your creditors have reported about your credit history. Make sure to compare this report to your own spreadsheet. Are there any debts on your credit report that you forgot to list? Finally, it’s also a good idea to get your credit score, which is available for a fee from the credit reporting bureaus or your credit card company.  

Determine Your Monthly Income

After you’ve identified the debt you want to consolidate, your next step involves calculating your actual monthly take-home income. Since the ultimate goal of debt consolidation is to avoid taking on new debt while making regular, reliable, monthly payments, knowing how much you earn each month will help determine whether debt consolidation makes sense for your circumstances. When you do your calculation, only include regular income so that you don’t overestimate how much money you can rely on when budgeting. 

To calculate your monthly take-home income, pull together your last two paycheck stubs. Are these paychecks typical of your normal income? For example, did you work more overtime than usual or did you call-out for a few days? If so, look back to a few more paychecks and try to find one that is more representative of your usual income. 

On your paystub, there should be a line item called “Net Pay,” which is the amount that you took home after taxes and payroll deductions. Use this amount to determine your monthly take-home pay. To calculate this amount, you need to know whether you are paid weekly, bi-weekly (every other week), semi-monthly (twice a month, like on the 1st and 15th), or monthly. Depending upon your pay frequency, use the following math to find your net annual income:

  • weekly, multiply your “Net Pay” by 52;

  • bi-weekly, multiply your “Net Pay” by 26;

  • bi-monthly, multiply your “Net Pay” by 24; or 

  • monthly, multiply your “Net Pay” by 12. 

To determine your net monthly income, divide your net annual income by 12. This is the amount of your take home income that you have available for living expenses, savings, and debt repayment.

Put Together Your Budget

Do you know how much money you’re spending each month and where it’s going? Collect and review your bank statements, credit card bills, and any miscellaneous receipts you may have for cash expenditures for the last three months. Then, go back to that spreadsheet that you created for your debt and, in a new column for each month, start inputting your monthly expenses. Add-up each column to see how much you are spending over the course of each month. Do any of these costs seem surprising or too large by comparison? If so, highlight them, and try to set a goal to reduce or eliminate those costs. 

Your monthly budget also needs to account for intermittent expenditures, like oil changes, car registration renewals, medical co-payments, etc. Brainstorm (or review more of your financial records) to identify those costs that occur infrequently. Then, add those costs up and divide by 12 to calculate the amount you need to set aside each month to cover those bills. 

Finally, and importantly, add 10% to your total monthly expenses for an emergency fund. While no one can truly anticipate emergencies, adding a buffer to your monthly budget will allow you to pay unexpected bills without taking on new debt. 

Do the Math 

To figure out what portion of your monthly income can be put toward your debt payment, total all of the debts that you identified at the beginning of this exercise. This total will represent the approximate loan amount that you will need to borrow (or consolidate via a debt management plan). Most debt consolidation loans have a loan term of either five or ten years to repay the total amount due. So, in order to figure out how much you need to set aside to make your monthly loan payments, divide your total loan amount by either 60 (for a five-year loan) or 120 (for a 10-year loan). Subtract this monthly payment amount from your monthly income. The remainder is what you have available for your monthly budget. Does it look like you will have enough income left to cover the monthly expenses you listed in your budget? If so, a Kentucky debt consolidation loan may be an option for you to refinance your debt. If not, see whether you can significantly reduce or eliminate any expenses. As a general rule, if your debt repayment is more than 40% of your monthly income, you will likely need to explore other debt relief options.

Review Your Kentucky Debt Consolidation Options

There are a number of debt consolidation options available to consumers depending upon their types of debt and their credit score. One of the most common ways to reorganize credit card debt involves a credit card balance transfer. If you have good credit but you are carrying a large credit card balance with a high-interest rate, then you may be able to transfer that balance to a different credit card at a lower rate. This is a great option to lower your minimum payment, but always check the fine print: some cards will charge you a balance transfer fee, while others offer the low-interest rate only for a short promotional period after which the interest rate skyrockets. 

If you own a home, you might be able to borrow against the value of your property through a home equity loan. These loans generally offer the lowest interest rates and the lowest loan payments, but they come with extra costs, like charges for appraisals, origination fees, and legal fees. Home equity loans are also uniquely dangerous: if you default, you run the risk of losing your home. 

If you have good credit, but you don’t have property to borrow against, you may be able to get a personal loan from a bank or online lender to help pay off your debt. These lines of credit are usually easy to apply for, don’t require much paperwork, and have relatively favorable repayment terms (fixed interest rates at a lower rate than, say, what your credit card charges), but you will likely be charged an origination fee. The primary benefit of securing a Kentucky debt consolidation loan is that with the credit you receive from the new loan, you can pay off different types of debt, including car loans, credit card debt, student loans, or personal loans, etc.

Apply for a Kentucky Debt Consolidation Loan

If you think a Kentucky debt consolidation loan can help you resolve your financial situation, a good place to start is by reaching out to an accredited Kentucky credit counseling agency (look for an accredited agency that’s a member of the National Foundation for Credit Counseling) to discuss your loan or debt management plan options and to obtain additional resources. These agencies don’t provide loans, but they can help you make an informed decision about where to apply for a new line of credit. Before you start exchanging any financial information with any lenders, you should also check with your local Better Business Bureau to ensure that the lenders that interest you are legitimate. Over the years, there have been a number of scams related to debt consolidation, so trust your gut. Walk away if an offer sounds too good to be true or if a “lender” is overly aggressive or requires money up-front. 

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

Once you’ve consolidated your debt, you’ll be more likely to become debt-free if you have a plan in place to help you stay current with your payments. One easy way to make sure that you are making your payments on-time is to set-up an automatic loan payment through your bank. Choose a day of the month when you’ll have a positive bank balance (for example, maybe three days after your first monthly paycheck), and set your loan payments to be automatically deducted each month on that day. 

If you have trouble budgeting, there are a bunch of apps and online tools (like Mint or Albert) that can help you track your spending, categorize it into different types of purchases, and send you alerts when you are getting close to overspending. These apps can help curb your spending habits as you go throughout your daily life. 

If possible, set aside a little bit each month for both the unexpected and for yourself. Your budget should include money for an emergency fund, and if you set that aside each month in a separate account, you’ll be better prepared when the unexpected happens. And, since budgeting and paying off your debt is hard work, you should pay yourself a small stipend each month. When you hit a big milestone, take that money and reward yourself for your efforts! 

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Kentucky Debt Management Plan

Many credit counseling agencies offer another type of debt consolidation known as a debt management plan (DMP). With a DMP, your credit counselor will deal with your creditors to (ideally) set up a more affordable payment plan. When you submit your monthly payment to your credit counseling agency, it then splits-up your payments and reimburses your creditors based on that schedule. Unlike a debt consolidation loan, all of your debt remains outstanding until you finish paying your DMP.  If you owe mostly unsecured debt and you have a regular income, then a Kentucky debt management plan may be a good fit for your situation, especially if you have poor credit and don’t qualify for a debt consolidation loan.

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Kentucky Debt Settlement

Debt settlement is another way to obtain debt relief. A debt settlement strategy involves offering individual creditors a lump-sum payment for less than the total amount owed. In other words, you or a debt settlement company will make a “take it or leave it” offer to your creditors. A Kentucky debt settlement may work if you have the means to make a lump-sum payment, but you may be assessed late fees and interest while your debt settlement company and creditors are negotiating. Also, since creditors aren’t obligated to accept a debt settlement offer, they may decide to “leave it.” 

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Kentucky Bankruptcy

If you’ve considered the above options, but your total debt is just too significant to solve through a repayment plan, then consumer bankruptcy may be the best option for you. The bankruptcy system was created specifically to provide a way for honest consumers to get a fresh financial start. And while declaring bankruptcy will temporarily damage your credit score, it can also help protect you from creditor harassment and from losing certain assets (like your home). If you are thinking about filing a Kentucky bankruptcy, Upsolve can provide additional information and assistance about the bankruptcy process. 

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