How to Consolidate Your Debts in Pennsylvania

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Written by John Coble, Esq.  
Updated December 17, 2019

Summary

The rest of this section will focus on the steps for a successful debt consolidation. After this section, we will look at alternatives to debt consolidation.

Before H.J. Heinz of Pittsburg came along, ketchup was not America’s favorite condiment. There were difficulties with the manufacture of ketchup that made it necessary to include dangerous preservatives such as coal tar in the recipe. Heinz found a way around this and today we have the ketchup that almost every burger, hot dog, and french fry in America has on it. Before Milton Hershey of Lancaster, developed a way to mass-produce milk chocolate, chocolate had been a luxury only for the wealthy. Before either of these Pennsylvanians invented modern ketchup and chocolate, they both bankrupted their earlier companies. They could have struggled with their debt for the rest of their lives, but they didn't. Instead of satisfying a few bankers, they satisfied the whole world with their products. Aren’t you glad they put their customers over their bankers?

If you're falling into a debt crisis, it’s important to find solutions that can free you to make positive contributions to society. It helps no one for you to be overburdened by your debt. We are a nonprofit company helping Pennsylvanians find the best debt relief options for their particular financial situations.

A Pennsylvania debt consolidation is one possible solution. A debt consolidation works by using a new loan to pay off your unsecured debts such as credit card debts and medical bills. This leaves only the Pennsylvania debt consolidation loan for you to pay off with a single monthly payment. Debt consolidations can use a few different types of loans such as personal loans, credit card balance transfers, or home equity loans.

A Pennsylvania debt consolidation is different from a debt settlement. In a debt settlement, you make large lump-sum payments to settle your debts for less than the full amount due. A debt settlement will hurt your credit since you're not paying your debts in full. Another problem for debt settlements is that some debt settlement companies are shams. A debt consolidation will not harm your credit since you're paying your debts in full. A debt management plan is a close cousin of a debt consolidation. The debt management plan differs from the debt consolidation in that it uses a credit counseling agency to set up a payment plan for the total amount of your included debts, then combines these debt payments into a single payment.

Learn More Through Free Nonprofit Credit Counseling

Credit counseling is a good start for anyone that is looking for a debt solution. A good nonprofit credit counseling agency will look at your situation such as your monthly payments on your debts and recommend the appropriate debt relief option for you. At your meeting with a credit counselor, the counselor will go over your finances. You and your counselor will set goals and develop a plan of action to achieve these goals. While credit counseling is free, credit counseling agencies do offer other services that aren't free. Some services that a credit counseling agency may charge for are debt management plans, foreclosure counseling, bankruptcy counseling, and other services beyond basic credit counseling. Though a credit counseling agency may be a nonprofit, it will charge fees for some services to pay its employees. The best credit counseling agencies will waive these fees in cases of extreme hardship. 

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How to Consolidate Your Debts in Pennsylvania

The rest of this section will focus on the steps for a successful debt consolidation. After this section, we will look at alternatives to debt consolidation.


Collect the Details About Your Debts

The first step in deciding if a Pennsylvania debt consolidation is best for you is to take a close look at your debts. You will want the most recent statements for your credit card bills, other bills, and bank statements. When looking at the bills the most important parts are the interest rates, the minimum payments, and the current balance. There may be some debts that you don’t have a bill for. Check your free credit report to make sure you’re looking at all your debts. It's a good idea to classify your bills as secured or unsecured. Next, put student loans into another class. The best bills for a debt consolidation are unsecured bills like credit card debts and medical debts. Student loans are debts that usually have a longer-term than a Pennsylvania debt consolidation loan and won't work well in a debt consolidation. Student loans have better solutions such as income-based repayment. Other types of debts don't have this option. Secured debts such as auto loans don't work well in a debt consolidation. This is because turning a secured debt into an unsecured loan can complicate possible future debt relief options. For example, if you have paid off your car loan and you file a Chapter 7 bankruptcy in the future, you may have enough non-exempt equity for the Chapter 7 trustee to sell your car for the benefit of your creditors.  Generally, this doesn’t happen when someone still owes on a car loan. 

Determine Your Monthly Income

Your income is as important as your debt when determining if a Pennsylvania debt consolidation is the best option for you. This is because your income minus your expenses show how much you can afford to pay. Debt consolidations work best for you if you have steady income such as a dependable paycheck. If your income is in the form of commissions, then as you know, some months are better than others. If you have a shortfall in a particular month and aren't able to pay your debt consolidation payment, you could fall behind on your loan. In this case, the lender will charge you late fees and higher interest rates. High-interest debts are what you were trying to get away from when you took out your debt consolidation loan. Remember that even though your consolidation loan payments will be lower monthly payments than the combined minimum monthly payments on your included debts, it will still be a large payment.

Put Together Your Budget

When considering your expenses, break them into fixed costs and variable costs. Fixed costs are expenses that change little from month to month. Examples of fixed costs would be monthly payments for rent, internet bills, and car insurance. Variable costs are what they sound like. These are costs that vary from month to month. Examples of variable costs are groceries, entertainment, and gas. Variable costs are the expenses that are the easiest to change when setting up your budget. To change a fixed expense like rent, you might have to wait until your lease expires. For your internet bill, you may live in an area that has only one option and you may have to have the internet for work. In this case, there is nothing you can do about this fixed expense. In your budget, you have to set aside money for expenses that don’t happen every month. An example would be oil changes for your car. If you only get your oil changed once every three months, you would calculate the monthly amount to set aside for oil changes as four times the cost of the oil change divided by twelve months. You have many tools available to set up your budget. If you don't like computers, you can use a pencil and paper. The most flexible computer tool would be to use a spreadsheet such as Microsoft Excel or Google Sheets. The simplest way to set up a budget on a computer is to use free online tools such as Mint or Albert.

Do the Math

Once you have set up your budget and subtracted your expenses from your monthly income, how much is left? This is the disposable income you have to pay for your Pennsylvania debt consolidation loan. Take the total debt that you are going to include in the debt consolidation and divide it by sixty to get a rough idea of what your monthly debt consolidation payment will be over five years in an ideal case scenario of 0% interest. Only three things can happen now. First, you could have much more disposable income than is necessary to pay the debt consolidation loan. If this happens, recheck everything. If you had more than enough money to pay your debts, how did you get into this financial challenge? Have you recently had a big increase in income or a big decrease in fixed expenses? Reconcile this to make sure that your budget is accurate and workable. The second thing that can happen is that there isn't enough disposable income to make your projected debt consolidation payment. In this case, look to your variable expenses to see if you can cut your budget enough to make the payments. The third thing that can happen is that your budget is a little above or below the necessary monthly disposable income to make your payments. In this case, double-check to make sure. Now, you're ready to apply for a Pennsylvania debt consolidation loan.

Review Your Pennsylvania Debt Consolidation Options

Your debt consolidation loan options are personal loans, credit card balance transfers, home equity loans, or mortgage refinances.  Unsecured personal loans are the least risky option as long as you use a reputable lender. Home equity loans and refinancing your mortgage are risky because if you default, you could lose your home. Since these are secured loans, they should be the lowest interest rates. Pay close attention to origination fees and the overall expense when using these loans though. A mortgage refinance is for a much longer loan term and you could end up paying much more over the long run even though it isn't costing you as much monthly. Real estate appraisal costs and origination fees can make personal loans less expensive even if the home equity or mortgage refinance has a lower interest rate. A credit card balance transfer is good if you can pay off your debt before the introductory low-interest-rate expires. If you don't pay it off in time, you're still in good shape if your credit score is high enough to get another low-interest credit card with a high enough credit limit to transfer all of your credit card balances over to the new card. There is no guarantee that you'll be able to get this second low-interest card.

Apply for a Pennsylvania Debt Consolidation Loan

It's important to be able to trust the bank or financial firm where you apply for your Pennsylvania debt consolidation loan. The first place to look is to the Better Business Bureau website and look at the company's rating. Another place to look is the Consumer Financial Protection Bureau's Financial Complaints Database. Searching this database is like looking at online shopping reviews for a product. If you're dealing with a large company that operates in many states, there will be some complaints. No company can make everyone happy. It's best to read some of the complaints and use common sense to see if the complaints sound reasonable to you. If you see many complaints about a company scamming money from people, this isn't a good company to deal with.

How to Stay Current With Payments After Consolidating Your Debts in Pennsylvania

When setting up your debt consolidation, make sure your loan's due date doesn't fall at the same time of the month as other large loans. This will make it easier for you to make your payments on time. If it won’t cause you to overdraft, set up recurring automatic payments for the Pennsylvania debt consolidation loan. It's important to track your spending while paying off your debt consolidation loan. Staying on budget is key to being able to make your debt consolidation payments on time. Paying your debt consolidation payments on time is necessary to avoid late fees and higher interest rates. Late payments increase your chances of defaulting on your consolidation loan.

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Pennsylvania Debt Management Plan

In a Pennsylvania debt management plan, a credit counseling agency negotiates with your creditors for better terms on your debt. By getting low-interest rates for you, you're able to make one monthly payment to the credit counseling agency that is less than the combined payments you were making to your lenders. The credit counseling agency then pays each of your lenders. A debt management plan is like a debt consolidation in that it leaves you with one monthly payment to pay all your debts. Unlike a debt consolidation, a debt management plan doesn't involve a loan. A debt management plan is a good option if your credit score isn’t high enough to get a favorable debt consolidation loan.

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Pennsylvania Debt Settlement

With a Pennsylvania debt settlement, you pay a large lump-sum payment to each of your creditors to settle your debt for less than the full amount. Since you aren't paying your creditors in full, this will have a negative impact on your credit score. For these reasons, debt settlements are only a good solution if you have enough money to make large lump-sum payments, but at the same time have bad credit already. To have a successful debt consolidation, you have to reach a settlement with all your creditors. This isn't always possible since the creditors don't have to settle with you. If you use a debt settlement company, make sure you’re choosing a reputable company.

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Pennsylvania Bankruptcy

If your budget doesn't leave enough disposable income to make payments on a debt consolidation or a debt management plan, a Pennsylvania bankruptcy might be your best option. Bankruptcy uses the courts to eliminate your debt. We offer a solution for qualified individuals that allows you to file your own bankruptcy in cases where an attorney isn't needed. In cases that need an attorney, we can help you find a qualified attorney in your area. If you're having a problem providing for yourself or your family, don't hesitate to consider bankruptcy.  

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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