How to Consolidate Your Debts in Minnesota

Collect the Details About Your Debts 

The first step to successful debt consolidation involves creating an accurate picture of all the debt you have. In order to do this, you will need the specific details of those debts. Because the majority of debt that you will be consolidating is probably unsecured debt (including credit card debt and medical debt), the first place to look for details on your debt is on your most recent credit card statements and debt account statements. Locate statements that show your current balance, minimum payment, due date, interest rate, and annual fees. After you have your credit card statements also collect the details on your other debts like auto loans, student loans, judgments, and collections. Your credit counselor will let you know which of these can be consolidated with your unsecured consumer and medical debt. To be sure you do not forget any debts, obtain a copy of your free annual credit report and reference its contents at this time.

Determine Your Monthly Income

Determine your monthly income

Determining your correct monthly income is also an important part of successful debt consolidation in Minnesota. Upsolve recommends referencing your two most recent paycheck stubs. Do not include any overtime or extra pay in your total and try to use paychecks that reflect what you get paid in a typical month. You do not want to inflate your monthly income and jeopardize the success of your Minnesota debt consolidation. You’ll need an accurate assessment of your regular income before you can construct a budget that correctly reflects the state of your finances. 

Put Together Your Budget

Now that you have worked out the debt you have and the income you bring in every month, you can create a budget. A budget is designed to help you track your earnings and your spending and identify problem areas early. Take the expenses you pay out every month and subtract them from the income you bring in. If you want your budget to be more detailed, you should divide your expenses into “fixed” and “variable” costs. Fixed costs are expenses that do not change from month to month. Typically these are your auto loan, rent or mortgage, student loans, and insurance. Variable costs are expenses that tend to fluctuate based on your individual spending habits, such as your utilities, gas, groceries, and entertainment.  The difference between your income and all your expenses is your disposable income. You can get help putting together a budget using several online products like Albert.

Do the Math

By doing a little math, you can use your completed budget to help determine whether a Minnesota debt consolidation process will work for you. Take the total amount of debt you have and divide it by 60 (five years). This will give you the approximate monthly debt consolidation payment you would have if you want to be debt-free in five years. Your disposable income (income minus expenses that does not include debts you want to consolidate) should be larger than your debt consolidation payment in order for debt consolidation to make sense for you. If it does not, increase the payoff period from five years to ten years (120 months). Or see whether you can free up more disposable income by lowering some of your variable expenses. You can play with the numbers as much as you want but remember to be realistic. Minnesota debt consolidation only works if you have regular, reliable monthly income to make your debt consolidation loan payments consistently.

Review Your Minnesota Debt Consolidation Options

If you have done the math and worked out a Minnesota debt consolidation loan payment that fits into your budget, you are now ready to decide what type of debt consolidation is best for you. You should look at all the pros and cons of each alternative, as well as a debt management plan, before making your final decision:

• An unsecured personal loan may be your first choice if you want to leave your credit cards open. But you will usually need good credit to get a personal loan and you will probably not lower the interest rate you are currently paying. Both of which can defeat the purpose of pursuing debt consolidation.

• Refinancing your home mortgage is another popular choice for individuals who do not want to close their cards. But you obviously need to own your own home in order to refinance and refinancing can take a long time. In addition, it is generally not considered a wise financial move to take unsecured debt and turn it into secured debt on your home.

• A home equity loan is another popular debt consolidation option, but financially speaking, it is even worse than refinancing your mortgage. While you will likely get a very low-interest rate on the debt you consolidate, you will also put your home at risk of foreclosure should you default on your home equity loan payments.

• A debt management plan consolidates your unsecured credit card into one single monthly payment. It does not involve any risk upfront. However, your unsecured credit cards will typically be closed as part of the plan. And your credit score will initially be impacted which will limit your ability to obtain new credit. But, a debt management plan is available regardless of your credit score and can potentially lower your interest rate, re-age past due accounts and waive over-the-limit and late fees without having to take out a new loan.

Apply for a Minnesota Debt Consolidation Loan

Depending on the type of debt consolidation loan you choose to go with, applying for your debt consolidation loan can be fairly straightforward (like a credit card balance transfer) or quite involved (like a home equity loan or refinance). Regardless of what type of loan you choose, here are a few red flags to watch out for when selecting a lender:

• If you are considering refinancing or a home equity loan, try dealing with your current lender or local bank or credit union. Your existing relationship may help you get better loan terms.

• Always be suspicious of any offers you receive in the mail. Many reputable lenders use direct mail but many unscrupulous lenders also use it. If the terms and conditions seem too good to be true, they probably are.

• Do not deposit checks you receive unsolicited in the mail. If you think the check is legitimate, ask the sender if you can deal with them in person.

• Do not be afraid to turn down a bad loan with a high-interest rate, unreasonable terms or excessive fees and costs. Compare whatever loan terms you are offered with similar results you could get with a debt management plan. A debt management plan consolidates your unsecured debt regardless of your credit score. You make one single monthly payment to a non-profit agency of your choice, which then distributes it to your creditors. 

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

Because missing a payment or falling behind with your Minnesota debt consolidation loan payments may leave you in a worse situation than you were in before, it is important to come up with a plan now to stay current. Consider using some or all of the following tips and tricks to stay on top of your debt repayment schedule:

• Get a realistic due date. If your debt consolidation loan payment falls on the same day as other large monthly expenses that you pay, try to change it.

• Set up automatic bill pay with your bank or credit union to have your Minnesota debt consolidation loan payment made as a monthly matter of course.

• Pay extra and pay often. Make extra payments when you can. And pay extra with each payment if possible. The more you pay up front, the less interest you will pay over time, and the sooner you will be debt-free.

• Set up an emergency fund. Don’t miss a payment because an unexpected expense comes up.