How to Consolidate Your Debts in Maryland

Collect the Details About Your Debts

In order to determine whether Maryland debt consolidation makes sense for you, you will need to collect some details about your current debts. Whether or not the Maryland debt consolidation process is right for you will depend upon your specific financial details. Starting with your credit card statements, monthly bills and invoices, collect as much information as you can on the debts you would like to consolidate. Include your current balance, minimum payment, due date, interest rate, and annual fees. Be sure to also collect details on the other debts you have that you do not intend to consolidate like car loans, student loans, judgments, and collections. Finally, obtain a copy of your free annual credit report to make sure you do not forget to include any debts that remain outstanding. 

Determine Your Monthly Income

Your monthly income will also be a factor in determining whether Maryland debt consolidation makes sense for your situation. Successful debt consolidation relies on being able to make regular monthly payments for an extended period of time. As a result, when determining your monthly income, you should only “count” income that is regular and reliable. Income from commissions, stipends, student aid, child support or public assistance are usually not reliable over an extended period of time and therefore probably shouldn’t be included in your income calculations. The best way to calculate your monthly income is to use your two most recent paychecks. Make sure the paychecks are typical of what you earn every month and do not include large amounts of overtime, holiday pay or bonuses. Once you know what your reliable income consists of, you can compare that income to your expenses and your debt.

Put Together Your Budget

Next, you will need a budget. A budget serves as a summary of your monthly income and your monthly expenses. When you subtract your expenses (including debt payments on accounts you are not planning to consolidate) from your income, what you have leftover is known as your “disposable income.” This is ideally what you have available to pay debt. When it comes to budgeting, all expenses are not treated equally. You have fixed costs that do not fluctuate or change every month. And you have variable costs that can vary in amount from one month to the next. Fixed costs may include your mortgage, auto loans, student loans, and insurance. These are expenses you have to pay every month in the same amount. Variable costs are expenses like food, gas, and groceries that fluctuate from month to month. And even though they are necessities, you generally have more control over what you spend on them from month-to-month. 

Do the Math

By doing a little math, you can now get a fair approximation of what your debt consolidation loan payment would be. To calculate the payment take your “total debt” (on the accounts you hope to consolidate) and divide it by 60 months. The result, not accounting for interest, is the approximate Maryland debt consolidation loan payment you would have to pay off your debt in five years. Compare your approximate debt consolidation loan payment with your disposable income. If you can make the payment with your disposable income then Maryland debt consolidation would probably work for you. If you cannot ,try extending your pay off from five years to ten years (120 months) or see if you can reduce (or eliminate) some of your variable expenses. 

Review Your Maryland Debt Consolidation Options

Successful Maryland debt consolidation is a long term commitment. Regardless of what form of debt consolidation you opt for, you should be prepared to stick to the commitment you are making and adjust your lifestyle to avoid getting back into the same financial difficulties you were in before. As a result, it makes sense now to review the pros and cons of each type of Maryland debt consolidation loan and how they compare to your ideal financial situation:

• An unsecured personal loan is most people’s first and best option for a debt consolidation loan. However, it is usually also the option that requires the best credit score.

• A credit card balance transfer is a good option if most of your debt is credit card debt. It is risky though because it is usually tied to a low promotional interest rate that will increase significantly if all the consolidated debt is not paid off before the promotional period ends.

•  If you own your home, refinancing your mortgage is a popular form of debt consolidation. It is usually also one of the lowest interest rates you can obtain for debt consolidation. However, it will increase the balance owed on your mortgage and extend the time it will take to pay off your home.

• If you own your home, another low-interest rate option is a home equity loan. But like refinancing, a home equity loan can be a time-consuming process. It can also be expensive when you take into account loan origination fees and closing costs.

• If you do not own your home and you do not have good credit, a debt management plan may be your best option. A debt management plan is available regardless of your credit score and can consolidate all of your unsecured debt into one single monthly payment. With a debt management plan, you make one payment every month to a non-profit agency that distributes the payment to the creditors in your debt management plan.

Apply for a Maryland Debt Consolidation Loan

Deciding what lender to go with when applying for a Maryland debt consolidation loan can be a difficult process. Note that because they are not banks, non-profit credit counseling agencies do not fund debt consolidation loans. As you evaluate potential candidates, to make it less likely that you will be taken advantage of by an unethical or unscrupulous lender, here are some good rules of thumb to follow when making your decision:

• First, if you have not done so already, approach your local bank or credit union. You can often leverage your relationship with them to get a better interest rate or more flexible payment terms.    

• Be on guard for scams and fraudulent offers. If an offer sounds too good to be true, it probably is. Take it to your bank or financial advisor and get their opinion on the advertised terms and conditions.

• Never pay any money upfront. Most legitimate lending institutions will bundle their fees and costs into your loan when it is funded.    

• Do not deal with aggressive or fast-talking sales representatives. You should understand and be comfortable with all the terms and conditions of your loan before agreeing to it.  

• Weigh your offers against a debt management plan. A debt management plan can consolidate your unsecured debt regardless of your credit score. You do not have to pay anything upfront and you do not have to take out a new loan. With a debt management plan, you make one single payment each month to the non-profit agency of your choice. The agency then distributes the payment to the creditors in your debt management plan.

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

There are some things you can do now to make it less likely that you will get behind on your debt consolidation repayment schedule. For instance:

• Automatic payments are a great way to stay current with your payment. All you have to do is make sure the money is in your account every month to cover your debt consolidation loan payment. Your bank or credit union will do the rest.    

• Track your spending and stick to your budget. This is especially important if you set up automatic payments so you do not spend the money needed to make your payment.

• Coordinate your due date with your other large monthly expenses so that they do not fall on the same day. 

• Set up a separate account to cover large expenses that occur annually like your vehicle registration, taxes or school tuition. Try to keep these funds in a separate account than the one you use for your automatic payments.