How to Consolidate Your Debts in South Dakota

Collect the Details About Your Debts 

To figure out if a debt consolidation is right for you, start by collecting information on your credit card debt. Review recent credit card statements to figure out the total amount owed to your creditors. Compare this information with your credit report. Since you’re entitled to a free credit report every year, also check your credit history to make sure there aren’t mistakes as this could hurt your credit score unnecessarily. If you find a mistake in your credit report, file a complaint under the Fair Credit Reporting Act. There is no charge to do so.

Next, organize your debt into one of two categories: secured and unsecured. Examples of secured debt are mortgages, home equity loans, and car loans. Unsecured debt includes credit cards, personal loans, medical bills, and student loans. As you continue to organize your debts, write down the interest rates and monthly payments for each account, as this information will be needed when you plan your budget.

Determine Your Monthly Income

It’s not only important to know your credit card balance, but also your income to determine your monthly payment. Debt consolidation works best with consistent income since commission-based jobs make calculating a budget difficult. Also, be careful if you’re including child support or alimony payments in your budget, as that money isn’t always consistent nor guaranteed.

When calculating your income, use a couple of average pay stubs. If you use pay stubs with more overtime than usual, the amount of disposable income you have available will be higher and you’ll end up with a payment plan you can’t afford, making your situation worse. If you’re paid bi-weekly, multiply your bi-weekly net income times 26 and divide the answer by 12. Spousal income should also be included, especially if your spouse is responsible for the debt. If you receive social security income, a debt consolidation may not be the right option for you since your income is protected both in and out of bankruptcy. 

Put Together Your Budget

To calculate your expenses, review the last 12 months of bank statements. This is important because if you forget to include expenses in your budget when those bills are due, you may not have enough money to pay for it and may end up in more debt because of it. Start with monthly bills that are fixed each month such as your rent/mortgage, car payment, and car insurance. Calculate the average of fluctuating expenses such as gas, groceries, and utility bills. In reviewing your bank statements, you will find expenses that occur every few months like car maintenance and annual bills like real estate taxes and property insurance. Once you get the total amount of your expenses, divide it by 12 to figure out the monthly average. Cut back on areas of overspending and use the extra money to pay down your debt faster which will improve your credit score. 

Now subtract your expenses from your net monthly income. If you have disposable income available, a debt consolidation may be a good choice. However, if you have too much money left over, review your income and expenses again carefully. If you have no money left over, then you can’t afford a debt consolidation plan or an unsecured debt consolidation loan. If you need more help with budgeting, use apps like Mint and Albert and check out your bank’s website for free budgeting tools. Some banks will even notify you via text messages if your balance is low in order to avoid spending money unnecessarily by incurring overdraft fees.

Do the Math 

If you have disposable income available, calculate a monthly payment plan to pay off your credit card balance without interest in five years. Divide the total amount of your credit card debt by 60 (months). Compare that number to your disposable income. If there’s money left over, debt consolidation is a good choice. 

Before you apply for a South Dakota debt consolidation loan, calculate your credit utilization ratio which is one of the factors used to determine credit scores. The better your credit utilization ratio, preferably below 30 percent, the better position you’re in to negotiate with a lender. To figure out your credit utilization ratio, divide the total amount of your debt by your credit limit. 

Review Your South Dakota Debt Consolidation Options

With disposable income available, it’s time to review the different types of loans available to you. If a credit card company is offering you a lower interest rate than what you currently have, consider a balance transfer. If there is equity in your home, a home equity loan is also a good choice. Equity is the difference between the value of your home and what you owe. With a home equity loan, confirm the costs of a loan origination fee, but be careful with an Adjustable Rate Mortgage, known as ARM. With an ARM, the interest rate changes monthly so if the interest rate increases, so will the monthly payment. This will make budgeting more difficult. Instead, ask the bank about a mortgage modification program that may reduce your monthly payments. While a refinance of your mortgage or a home equity loan may result in lower monthly payments, it will cost you more in the long run. Also, if you fall behind on your monthly payments, you’re at risk of losing your home to foreclosure. That’s why unsecured loans offer the least risk.

Apply for a South Dakota Debt Consolidation Loan

When applying for a South Dakota debt consolidation loan, work with a trustworthy lender such as your local bank. Excellent sources to review lenders is the Better Business Bureau (BBB) and the South Dakota State Attorney General’s Office. Lenders that want money upfront, offer high-interest loans, or use aggressive sales tactics should be avoided. 

If you don’t qualify for an unsecured loan or a personal loan, continue reading to learn about a debt management plan and other debt relief alternatives.

How to Stay Current with Payments After Consolidating Your Debts in South Dakota

As you continue to work towards improving your financial situation, avoid certain mistakes that will cost you money. For example, avoid late payments and late fees by having payments withdrawn automatically from your checking account. Make sure the due date of your loan payments is on a convenient date. If not, 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. When possible, pay more than the minimum payment. You will not only get out of debt faster, but your credit score will improve quicker as your debt goes down. Also, start saving money by contributing more to your retirement account and consider opening a savings account.