How to Consolidate Your Debts in New Jersey

Collect the Details About Your Debts

No matter what type of debt consolidation you ultimately choose, you can get a head start on your debt consolidation by collecting some important details about your debts now. In order to know if debt consolidation is right for you, you need to know the full amount of debt you will be consolidating. You can use your credit card statements to determine your current balances, minimum monthly payments, due dates, annual fees, late payment fees, over-the-limit fees and other charges billed to your accounts every month. Other important details about your debts include whether or not they are secured or unsecured debts, who your creditors are, due dates, minimum payments, and other loan terms and conditions that apply to your debts. If you can’t locate your actual bills, pull a copy of your free annual credit report which will include most of this information. Even if you will not be consolidating debts like car loans, student loans and medical bills, you should still collect the details on these types of loans as well. Your credit counselor will need them to help you put together your budget.

Determine Your Monthly Income

Other than how much you owe, your monthly income is the second most important factor in determining if you are a good fit for debt consolidation. After you have put together the details about your debts, determine your monthly income. In order to calculate your monthly income, you should use your two most recent paystubs to determine how much income you bring in every month. Don’t include overtime pay in your budget, as it can vary from paycheck to paycheck and artificially inflate your income. Also, be realistic if you get paid on commission or freelance. Debt consolidation works best for individuals with a steady, regular income because your monthly payment will not fluctuate with your pay.

For purposes of debt consolidation, income means how much money comes in the door and what the sources of that money are. Non-wage earners whose principal income is social security benefits or other assistance can still qualify for debt consolidation. Social security as a source should be given special consideration when determining whether debt consolidation is in your best interest as it’s protected from your creditors in most instances. Regardless, income does not mean it has to be taxable. In the context of debt consolidation, it only means the money you have available to pay for living expenses.

Put Together Your Budget

When you take part in non-profit credit counseling, your credit counselor will talk to you about a monthly budget. A budget is a snapshot of your monthly income and your monthly expenses. You use your budget to schedule track monthly expenses and ensure that your expenses don’t exceed your income. You also use your budget to separate your expenses into “fixed costs” and “variable costs.” Fixed costs are generally those items you must pay that don’t fluctuate from month to month like your rent, car note, car insurance, and student loans. Variable costs are expenses that vary from month to month, like gas, utilities, and groceries. One of the goals of a good budget is to reduce as many of your variable costs into “fixed costs” each month so you can plan to pay them in advance. You can do this by averaging the amount you spend on such things as groceries every month. If you take the total amount spent on groceries over a six month period and divide it by six, the result would be the average costs of your groceries every month. This is also the perfect time to identify problem areas of overspending on such things as dining, recreation or entertainment.

Do the Math

The bottom line when it comes to deciding whether debt consolidation is a good option for you is your monthly debt consolidation payment. By doing a little math, we can get a quick preview of what your monthly debt consolidation payment would be. To work this out, we will need the numbers for your total debt, current total monthly debt payments, and disposable income. Now take your total debt and divide it by 60. This is your monthly debt consolidation payment over a five year period, assuming you’re able to get a 0% interest debt consolidation loan. Then compare that payment to your disposable income. If your disposable income is less than this amount, then you’re probably not a good candidate for debt consolidation and should look into some of the other debt-relief options we discuss at the end of this article. If your disposable income is significantly more than this number, consider decreasing your debt consolidation pay off period from five years to three (36 months) or four (48 months) years.

If your disposable income was slightly less than your debt consolidation payment look at ways to lower spending on some of your variable or fixed costs. For example, if you’re spending $200 per month on a family plan cell phone account, consider separating the accounts and asking your adult children or spouse to pay for their own service.

Review Your New Jersey Debt Consolidation Options

Now it’s time to review your debt consolidation options. Whether you choose to apply for a new loan to consolidate your debts or take advantage of a debt management plan with lower interest rates and a lower monthly payment, you should still be aware of all your options before you apply for the debt consolidation of your choice:

• Credit card balance transfers are risky because they offer a lower interest rate on balance transfers for a promotional period of time that is usually shorter than the time you need to pay off the entire balance. If the balance is not paid off within this time, the interest rate usually increases significantly, and you end up paying a higher interest rate than you currently have. Other fees like balance transfer fees can also increase the actual rate of interest you pay on the balance even during the promotional period. 

• Refinancing your mortgage and pulling out extra equity to pay off debt refinances your unsecured debts over the term of the mortgage and may, therefore, be more expensive in the long run. 

• A home equity loan often comes with an adjustable interest rate, loan origination fees and closing costs that can increase the cost of the loan significantly over the life of the loan. This may result in you having a larger monthly payment than you had before and costing you more in interest and origination fees than you were paying. Even worse, if you default on the loan, you risk losing your home.

• Obtaining an unsecured personal loan usually has fewer risks than the other options as long as you go through a reputable lender. However, they may come with a higher rate of interest than you are paying on most of your credit card debt, so choose carefully. 

 A debt management plan typically does not involve any risk upfront and doesn’t require good credit. However, once you enter into the payment plan, your unsecured loans and credit card accounts will typically be closed as part of the plan. Your credit score will initially be impacted, which will limit your ability to obtain new credit. However, a debt management plan is typically the quickest debt consolidation to get started and will provide the most immediate debt relief while putting you on a path to becoming debt-free.

Apply for a New Jersey Debt Consolidation Loan

Before you apply for your New Jersey debt consolidation loan, you should familiarize yourself with what to look for and what to avoid when selecting a debt consolidation loan. A few rules of thumb include:

• First, try to deal with your local bank or credit union first. Your existing relationship with them not only assures that they are reputable, but it may get you better terms on an unsecured debt consolidation loans, a personal loan, or home equity line of credit if you are approved.

• Never pay any money upfront; legitimate lending organizations don’t ask for money before they’ve provided any service.

• Carefully scrutinize any offer you receive in the mail; is it advertising a promotional rate or are the terms only available to “well qualified” applicants;

• And never deposit any “checks” you receive unsolicited in the mail!  Doing so provides the lender with all of your pertinent banking information and often obligates you to extremely onerous repayment terms hidden in the very fine print.

• Compare whatever offers you receive to similar results you might be able to achieve through a debt management plan that lowers your interest rate lowers your monthly payment and waives over-the-limit and late fees.

Finally, if you feel you are being taken advantage of or have been pressured into an arrangement that your lender will not let you out of, report your dealings with that lender to the New Jersey Division of Consumer Affairs.

How to Stay Current with Payments After Consolidating Your Debts in New Jersey

Whether you have completed your debt consolidation, or are just applying, it’s never too early to start thinking of ways to stay current with your payments after consolidating your debts in New Jersey. First of all, come up with a good due date to make your debt consolidation payment every month. Second, make extra payments when you can on your debt consolidation. These extra payments will not only help you pay off your debts sooner but may provide a cushion if you have trouble making a payment later. Finally, come up with some ways you can reward yourself and create milestones to celebrate so you don’t have to wait until the very last payment to feel as though you’ve accomplished something.