Continue reading to learn more about debt consolidation and how Upsolve can help you.
Written by Attorney Alexander Hernandez.
Updated December 17, 2019
Popular discount store Fred’s is closing 10 locations in South Carolina due to a recent bankruptcy filing and Toys R Us closing all of its locations. Even Black Friday wasn’t enough to keep K-Mart open, as all locations will be closed permanently by the end of the month. As thousands of residents of the Palmetto State are left without work making it difficult to pay their monthly bills, know that Upsolve is here to help you free of charge. Continue reading to learn about the different debt relief options available to you.
A debt consolidation is a process of combining your debt into a new loan to save money. With good credit, there are several types of loan options available to you. By getting rid of high-interest debt with an unsecured debt consolidation loan or personal loan, you will reduce the monthly payments on your credit card debt. A credit card balance transfer is another common technique. With a credit card balance transfer, a lower rate of interest is offered during the promotional period. However, confirm the interest rate when the promotional period expires to make sure you don’t end up with a higher monthly payment than you previously had. Also, find out the costs of transfer fees.
Refinancing your mortgage or getting a home equity loan will also lower your monthly payments, but it will cost you more money in the long run. The amount of equity in your home is also reduced and there may be loan origination fees. To calculate the equity in your home, subtract the balance of your mortgage from the value of your house. An unsecured debt consolidation loan offers the least risk because if you default on your mortgage or home equity loan, you could end up in foreclosure.
A debt consolidation is different from a debt settlement. Consolidating your debt results in getting a new loan or debt to pay back 100% of what you owe. With a debt settlement, only a portion of your original balance is paid back. Debt settlement is common when a creditor has filed a lawsuit against you. There are also tax consequences with a debt settlement and your credit score will be impacted negatively.
A debt management plan is another form of debt consolidation. With a debt management plan, you aren’t getting new debt. Instead, a nonprofit credit counseling agency will help prepare a budget for you and renegotiate the payment terms on your credit card debt.
Learn More Through Free Nonprofit Credit Counseling
Credit counseling is a form of financial education and can benefit anyone who needs debt relief. A certified credit counselor will review your financial situation and create a budget to track your spending habits. The next step is for the credit counselor to negotiate on your behalf with the credit card company. The credit counselor may be able to reduce the interest rate on your higher-interest credit cards and combine your debt payments into a single payment due each month. Even though credit counseling agencies negotiate with creditors, they aren’t a bank and therefore don’t offer loans. Credit counseling agencies also offer foreclosure and bankruptcy counseling. Check with the NFCC to confirm the credit counseling agency is a nonprofit organization.
How to Consolidate Your Debts in South Carolina
Continue reading to learn more about debt consolidation and how Upsolve can help you.
Collect the Details About Your Debts
It’s important to know the total amount of your debt to calculate your debt consolidation plan. Review recent credit card statements for the balances on your credit cards. Also, review your credit report to make sure all your creditors are included. If you find any mistakes in your credit history, file a dispute under the Fair Credit Reporting Act (FCRA). There is no cost to you for doing so and under the FCRA, you are also entitled to a free credit report every year.
There are two different types of debt: secured and unsecured. Secured debt includes car loans and mortgage(s). Unsecured debt includes credit cards, personal loans, medical bills, and student loans. Write down the interest rates, monthly payments, and balances for each debt as this information will be needed when planning your budget.
Determine Your Monthly Income
Debt consolidation works best for those with regular income. Irregular income such as from commission-based jobs or money received from child support and alimony shouldn’t be included. That’s because those funds aren’t always reliable which will make calculating your monthly payments difficult. If you receive Social Security income, know that it's exempt (protected) in and out of bankruptcy. Therefore, a debt consolidation may not be the right option for you.
Use an average paystub to calculate your income, not a paystub that has more overtime than usual. Otherwise, your monthly payment will be more than you can afford. To calculate your monthly income based on your bi-weekly paydays, multiply your net income (after taxes) times 26 and divide the answer by 12 since there are 26 pay periods in the year. Include your spouse’s income as well in your calculations, especially if you are both responsible for the credit card debt.
Put Together Your Budget
When preparing your budget, all your expenses must be included. If not, when those bills are due, you will not have enough money to pay for them and may inadvertently get into more debt. Start with your expenses that are fixed amounts each month such as your rent/mortgage, car payment, and car insurance. Review at least the last 2 to 3 months of bank statements for bills that fluctuate monthly like gas, groceries, and utility bills. When reviewing your bank statements, look for expenses that occur every few months like car maintenance and annual bills like real estate taxes and property insurance. To figure out the monthly average of these expenses, divide the full amount by 12.
Where possible, reduce your expenses and use the extra money to pay down your debt. By paying more than the minimum payment, your credit score will improve. Subtract your expenses from your net monthly income. If there isn’t disposable income available, then a debt consolidation plan won’t work since you can’t afford the payment plan. However, continue reading to learn about debt management plans. If you have too much money left over, review your income and expenses again for any mistakes.
Do the Math
To see how much it would take to pay off your credit card debt within five years without interest, divide the total amount of your debt by 60 (months). Compare that figure to your disposable income. If you have enough money left over, then consider a debt consolidation.
Also, calculate your credit utilization ratio which is important when applying for a South Carolina debt consolidation loan. A good credit utilization ratio is at or below 30%and it’s one of the factors used to determine your credit score. To calculate your credit utilization ratio, divide the total amount of debt by the credit limit.
Review Your South Carolina Debt Consolidation Options
With good credit, a credit card balance transfer, personal loan, unsecured debt consolidation loan, or home equity loan are some of the different types of loan options available to you.
With a balance transfer, confirm the interest rate and monthly payments when the promotional period expires. Don’t assume you will get more offers for another balance transfer. If applying for a home equity loan or a mortgage refinance, ask the lender about additional expenses such as appraisal costs and loan origination fees. If the bank offers a home equity loan with an Adjustable Rate Mortgage (ARM), ask instead about mortgage modification programs. Adjustable Rate Mortgages make budgeting difficult because the interest rate “adjusts” or changes each month. If your monthly payment suddenly increases, you are at risk of defaulting on your loan.
Continue reading to learn about a debt management plan if you didn't qualify for a South Carolina debt consolidation loan.
Why using your retirement account to consolidate and pay off your debt is a terrible idea
While there may be more than enough money to pay off your credit card debt with funds from your retirement account, know the consequences. For one, you will have less money available for retirement. Also, the amount withdrawn is taxed, costing you more money. Since South Carolina retirement accounts are protected from creditors and exempt in a bankruptcy case, this option may not be to your financial benefit. Exempt means the bankruptcy trustee can’t take it away from you, no matter how much you owe your creditors. Using a consolidation loan to pay off your auto loan isn’t a good option either because you risk losing your car if your consolidation doesn’t work out and you end up having to file for bankruptcy. The amount of equity over the exempt (protected) amount is not protected and the bankruptcy trustee might end up selling your car, giving you the amount of the exemption, and paying the rest to your creditors. Since student loans can be negotiated separately and payment plans are flexible, don’t include them in a debt consolidation loan either. Instead, if you need to reduce the monthly payment on your student loan, apply for an income-based payment plan.
Apply for a South Carolina Debt Consolidation Loan
When applying for a South Carolina debt consolidation loan, work with trustworthy lenders. Be careful of lenders that require money upfront and use high-pressure sales tactics via email, mail, and phone calls. Research companies on the website of the BBB (Better Business Bureau) and the South Carolina Attorney General. Search for fraud alerts and companies that have a bad reputation.
How to Stay Current with Payments After Consolidating Your Debts in South Carolina
As you begin making your loan payments, avoid certain financial pitfalls. Late payments and late fees can be avoided by having your payments withdrawn automatically from your checking account. Have the due date of your loan on a convenient date. Having to make the loan payment during the same pay period as your larger expenses such as your mortgage or rent, increases the chances of defaulting. You are also left with little to no money until your next pay period. As you pay down your debt, open a savings account or contribute more to your retirement account.
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South Carolina Debt Management Plan
If you were denied a South Carolina debt consolidation loan, consider a debt management plan. Also known as a DMP, a debt management plan is another form of debt consolidation. A nonprofit credit counseling agency will help you prepare a budget to pay back your creditors within a 48 to 60 month period. The credit counseling agency may also be able to negotiate with creditors for a lower rate of interest including the convenience of a single monthly payment. The initial assessment with a credit counseling agency is free, but make sure to review with the credit counselor any possible fees for additional services.
A South Carolina debt management plan is different from a traditional debt consolidation loan. A consolidation is getting a new loan to pay back your creditors. While a debt management plan is renegotiating the payment terms on your current debt. Continue reading to learn more about debt settlements.
South Carolina Debt Settlement
With a debt settlement, you aren’t getting a new loan to pay off your debts nor are you paying back the total amount of the outstanding balance. Debt settlements are usually the result of a debt collection agency filing a lawsuit against you, though you don’t necessarily have to wait for that to happen before attempting a settlement. Since you probably have bad credit by then, a debt settlement may be the right choice to eliminate that debt. However, there are tax consequences to a South Carolina debt settlement. For example, if you owe $1,000 and settle for $400, you will be taxed on the difference of $600. Before you hire a debt settlement company to negotiate on your behalf, research them with the links previously provided. Any agreements with the debt settlement company should also be in writing to avoid any misunderstandings.
South Carolina Bankruptcy
If you are unable to reach a debt settlement, qualify for a South Carolina debt consolidation loan, personal loan, or a debt management plan, consider filing for bankruptcy.
At Upsolve, we are here to help with your South Carolina bankruptcy. Our website offers hundreds of free articles on bankruptcy and related subjects for every state. Thousands of families have used our free bankruptcy service. Even if you don’t qualify for our free bankruptcy service or if you want to speak with an attorney first, we can refer you to a bankruptcy attorney in your area.