The rest of this guide is written in a step by step fashion to walk you through the process of consolidating your debts. While most of the steps apply specifically to a New Mexico debt consolidation loan, we will also show how a debt management plan can be a good alternative to a New Mexico debt consolidation loan.
Written by the Upsolve Team.
Updated December 14, 2021
Getting out of debt can be difficult even when you have the means to do so. But if you have more monthly bills than you can pay every month after covering your day-to-day expenses, then getting out of debt requires putting together a good long-term plan you can stick to. One way of becoming debt-free used by thousands of Americans every year is debt consolidation.
Debt consolidation works by combining all of your high-interest rate debts into one single debt with one single monthly payment. Debt consolidation can involve taking out a new loan or it can involve entering into a debt management plan. When debt consolidation is accomplished by taking out a new loan, this loan can take many different forms — a personal loan, a home equity line of credit, credit card balance transfer, or refinancing a mortgage to pull out equity.
The benefits of debt consolidation include saving money on higher interest rate credit card balances by obtaining a lower interest rate on the consolidated debt. Avoiding charges for missed and late payments as a result of only having one single monthly payment to cover everything. A lower monthly payment, and, more importantly, repaying your debt with debt consolidation puts you on a clear trajectory to being debt-free — an admirable goal to strive for. It can also help free up money to pay other bills, like your rent, which can help you avoid eviction.
Learn More Through Free Nonprofit Credit Counseling
To get a more thorough explanation of how debt consolidation works and what type of debt consolidation would be best for you specifically, request a risk-free, no-obligation, free credit counseling session with an accredited non-profit credit counseling agency. For help finding an accredited non-profit credit counseling agency in your area, feel free to contact Upsolve.
Credit counseling is designed to benefit anyone looking to get out of debt or get better control of their finances. Even if you do not have bad credit and are not behind on your bills, a non-profit credit counseling session can explain the options available to you through debt consolidation.
Non-profit credit counselors work with you to assess your current financial situation, develop a realistic spending plan, review your credit history, establish achievable financial goals and create a personal action plan for success. There is no cost for the initial credit counseling and assessment. You can get more information on non-profit credit counseling andMMI’s credit counseling service to see if it’s right for you
Credit counseling agencies offer credit counseling, and if appropriate, debt management plans (which are a form of debt consolidation) designed to fit your budget and help you get out of debt. These plans are developed with your creditors and set up to pay off your debts in full. Credit counseling agencies do not offer debt consolidation as a service as they are not banks and do not have the ability to finance debt consolidation loans. They also offer other services related to consumer finances like foreclosure counseling, homebuyer counseling, student loan counseling, reverse mortgage counseling, and credit report review.
How To Consolidate Your Debts in New Mexico
The rest of this guide will walk you through the process of consolidating your debts step by step. While most of the steps apply specifically to a New Mexico debt consolidation loan, we will also show how a debt management plan can be a good alternative to a New Mexico debt consolidation loan.
Collect the Details About Your Debts
The first thing you will need to do to apply for a New Mexico debt consolidation loan is to collect all the details about your debts. This includes who you owe, how much you owe them, what type of loan you have, your annual interest, your loan terms, and conditions. Try to organize these debts according to the nature of the debt – personal loans, car loans, credit card debt, medical bills, student loans, etc.
Start with your credit card statements and statements detailing other unsecured accounts. These statements should detail your current balance, your minimum monthly payment, your due dates, your annual interest rate, late fees, over-the-limit fees and other charges billed to your account. Knowing the full amount of debt you will be consolidating (and all the other details) is necessary to figure out whether consolidation makes sense. In addition to credit card statements, you should also have a recent pay stub to calculate your monthly income. If possible, collecting receipts or bills showing how much you spend on groceries, utilities, gas, insurance, and taxes every month will also be helpful in creating your monthly budget.
Finally, obtain a free copy of your credit report. Debt consolidation can be especially useful for people who can afford to pay their debts, but don’t have a good track record of remembering to pay all of their bills every month. For this reason, getting your free credit report will serve as a safeguard to make sure nothing falls through the cracks when you put together your debt consolidation. You can obtain your free annual credit report once per year from all three of the major credit reporting companies.
Determine Your Monthly Income
In order to know if debt consolidation is a viable option for you, determining your actual monthly income matters just as much as your debts do. The more income you have leftover every month after meeting your day to day expenses, the more of your debts you will be able to consolidate and pay.
Because the key to a successful debt consolidation is not taking out new debt and making a set monthly payment every month, having a steady income is an essential part of successful debt consolidation. If you earn commission only or irregular income on a less than a monthly basis, putting together a successful debt consolidation may be challenging if it’s not clear that there is enough income to pay for your living expenses and still make the debt consolidation payment every month.
Put Together Your Budget
You will not be able to start debt consolidation without putting together a budget. A budget is a spending plan based on your income and expenses over a certain period of time. For purposes of debt consolidation, this period of time is usually one month. The goal of debt consolidation is to fit the monthly debt consolidation payment into your monthly budget.
You will track two types of expenditures with your monthly budget. Fixed costs and variable costs. Fixed costs are those expenses you must pay every month that do not change from month to month. They are usually described as your necessities or day to day expenses. In a 50/30/20 budget, you spend about 50% of your monthly income on necessities, 30% on wants and 20% on savings and paying off debt. Variable costs can include your necessities like utility bills, phone bills and transportation but in putting together a budget you try to allocate an average monthly payment for each of these costs that are then included in your budget as a fixed cost. You can do this by using your bank statements to review your spending for these items over the last 2-3 months and dividing the total amount by that period of time. This is also the perfect time to identify problem areas of overspending on such things as dining or
Do the Math
The best way to determine what type of debt consolidation is a good fit for you is by doing the math. Using the information you put together earlier to do your budget, you can get a good idea of what your particular New Mexico debt consolidation loan might look like.
Take your total debt and divide it by 60. This will tell you how much you would have to pay each month on that debt to pay it off in five years. For example, if your total debt was $60,000. Your monthly debt consolidation payment (without accounting for interest) would be approximately $1,000 per month. If you want to pay it off in four years divide the total amount by 48. If we compare the result to your disposable income, after paying your day to day expenses, you can see whether or not you would be able to make your debt consolidation payment every month. If not, redo the calculation over a long period of time. So instead of 60 months divide your total debt by 72 months or if you used 48 months this time divide it by 60 months.
Review Your New Mexico Debt Consolidation Options
In order to know what type of debt consolidation is best for you, it may be helpful to review your debt consolidation options. Whether you choose to go with a New Mexico debt consolidation loan, mortgage refinance, a home equity line of credit, or credit card balance transfer understanding the risks and rewards of each is a good idea.
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 line of credit usually comes with an adjustable-rate mortgage that can increase 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 debt consolidation loan usually has fewer risks than the other options as long as you go through a reputable lender. However, they typically 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. However, once you enter into the payment plan your unsecured loans 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.
Apply for a New Mexico Debt Consolidation Loan
There are many ways to apply for a New Mexico debt consolidation loan. In fact, according to the credit reporting agency, Experian, the number one reason consumers apply for a personal loan is debt consolidation. Among millennials, 20% applied for their last personal loan online. However, whether you choose to apply online or in-person at a bank or a finance company, there are some things you should be careful to avoid.
First and foremost, avoid any lenders that want money upfront before funding your New Mexico debt consolidation loan. Legitimate lending organizations don’t ask for money before they’ve provided any service. You should also be leery of any offers you may receive in the mail as the terms advertised in the offer are usually only available to the “most qualified” applicants or are simply false.
If all else fails, and you are unable to get approved for a debt consolidation loan or can’t find one with terms you are happy with, a debt management plan is a viable alternative. A debt management plan does not require that you take out any new debt and is available to you regardless of your credit score.
How to Stay Current with Payments After Consolidating Your Debts in New Mexico
The last thing you want to happen after consolidating your debts in New Mexico is to get behind on or miss your monthly payment. Doing so can not only jeopardize the debt relief you’re getting from the consolidation, but it can also make it impossible for you to get back on track.
Committing to a debt free life by way of a debt consolidation is a responsible step in dealing with your debt before it gets out of hand. And you should reward yourself for doing so. Thinking up small rewards or milestones to commemorate your commitment can encourage you to keep at it and see it through to the end. For example, going out to eat at the end of every month after you have made your debt consolidation payment can be a small but fun reward to look forward to while you are getting out of debt. Think of other small ways to reward yourself that will not break your budget. Of course, your biggest reward will be becoming debt-free in the very near future.
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New Mexico Debt Management Plan
A debt management plan is a form of debt consolidation designed to help you get out of debt without having to take out a new loan and regardless of your current credit score. Working with an accredited, non-profit credit counseling agency, you will put together a debt management plan tailored to your current financial situation and structured to pay off all your debt over 48 to 60 months. Most credit counseling agencies are also able to get your creditors to agree to a lower interest rate than you are currently paying on your credit cards and to waive over-the-limit and late fees.
New Mexico Debt Settlement
Another form of debt relief often lumped in with debt consolidation is debt settlement. Debt settlement differs from debt consolidation in that debt settlement does not repay your debts in full. Instead, you make a lump sum offer to your creditors, often through a third party debt settlement company, to settle the debt. Debt settlement is risky because your creditors don’t have to agree to take less than what they are owed. In addition, every single creditor of yours has to agree to it individually if your goal is to completely eliminate all your debts. Finally, many debt settlement companies that promise to help you settle your debts are not trustworthy. And will charge up set up and origination fees whether any of your creditors agree to settle your debts or not.
New Mexico Bankruptcy
Now that you have completed this guide and know whether or not debt consolidation is a good fit for you and understand the advantages and risks of debt consolidation. If you realize you are not a good candidate for debt consolidation because you have little or no income or rely solely on commission or irregular income but are still desperately in need of debt relief, then a Chapter 7 bankruptcy may be your best option. Upsolve believes everyone deserves a fresh start. Every day we help individuals get out of debt for free without having to hire an expensive bankruptcy attorney. And, if you qualify, we can help you too.