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How to Consolidate Your Debts in Tennessee

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In a Nutshell

Debt consolidation requires some work before you begin. You’ll need to take a look at your overall financial situation using the steps outlined below. 

Written by the Upsolve Team
Updated December 17, 2019

Debt consolidation takes several debts and turns them into one easy monthly payment. There are many solutions to paying off your debt. This guide will give a brief overview of the steps you will need to take to consolidate your debts in Tennessee. It’s not unusual for debts to pile up for a variety of reasons. Tennessee’s bigger cities, like Nashville or Memphis, have higher costs of living. Residents take out debts to pay for increasing housing or transportation expenses. Hot summers can cause unexpectedly high utility bills. Unexpected home or vehicle repairs could result in increased credit card debt. Whatever the cause, keeping track of multiple debts can be a burden on the mind and the wallet. Having one monthly payment through debt consolidation reduces this headache. You’ll only have to remember a single payment date. You may benefit from a lower interest rate. You’ll also be motivated to complete the payments because you’ll come out of the other side debt-free. Still, debt consolidation is not without its own risks. A Tennessee debt consolidation loan may not have a better interest rate than your current debts. Debt consolidation creates more available credit as you make payments on your debts. It may be tempting to use this credit. Use this time to look at your spending habits to avoid getting into the same situation again. Using a credit card balance transfer to consolidate debts may only give you a short promotional period. Paying the balance beyond this period could mean you get stuck with a high interest rate. There are also scammers out there that claim to be able to help with debt. Avoid trouble by doing your research on anyone who offers to help you with debt. Finally, a debt consolidation payment is higher than any individual debt payments. If you fall behind on this one payment, it will be more difficult to catch up. You should also be aware of your own habits when taking out credit. If you don’t have your spending under control, you will likely get into the same situation. Before committing to a Tennessee debt consolidation, create and maintain a budget. A budget will allow you to balance your spending habits. This is especially important if you have gambling issues or poor money management skills. 

Typically, a debt consolidation is accomplished by by taking out more debt. A new loan or line of credit pays off all of the old debt. Credit cards often offer a balance transfer. A balance transfer allows you to pay back the balances on other cards at a low introductory rate for a limited time. Home equity loans or larger personal loans can also be used to pay off debts and consolidate your payments into one. Be aware of the origination fee for these loans. Before deciding on debt consolidation, you may want to look into debt settlement for debt relief. A debt settlement company negotiates with all your creditors for a lower payoff amount in. Your credit score will decrease because you aren’t paying your debts in full. Carefully research the debt settlement company you will hire. Often times, the promised results are too good to be true. 

Learn More Through Free Nonprofit Credit Counseling

Anyone feeling the pressure of growing debt can benefit from credit counseling. Credit counseling is available through a credit counseling agency. Trained counselors work with consumers to better understand their financial situation. With credit counseling, you’ll work to create a spending plan to achieve your financial goals. These services are offered for free. Depending on your situation, you may also be referred to other services. The counselor may suggest a debt management plan. A debt management plan is a form of debt consolidation. They may also offer other services related to consumer finances. Credit counseling is great for getting your finances on track, but it does have some risks. You’ll want to be cautious about who you choose as a counselor. The session should be free. Avoid trouble by choosing an NFCC accredited nonprofit credit counseling agency. Upsolve can help connect you to a trusted counselor through our referral service

How to Consolidate Your Debts in Tennessee

Debt consolidation requires some work before you begin. You’ll need to take a look at your overall financial situation using the steps outlined below.

Collect the Details About Your Debts

Debt consolidation requires some work before you begin. Start by gathering information about your debts. Collect the credit card debt statements, personal loan statements, medical bills, and other debts you want to consolidate. Get recent statements that show interest rates, loan amount, and monthly payment amounts. Separate them into types of debt and determine if they are secured by real estate, vehicles, or personal property. Credit card companies, student loans, and mortgage companies have helpful websites with the account information you’ll need. If you don’t have a recent statement or an online account, write down any information you remember about your other debts. Call each one to get the updated balances and account numbers. Pull your credit report from the credit reporting agencies. You get one free credit report a year from each agency. Your credit report may not show your most recent debts, but it’s a good place to start. You will need to remember or find smaller loans or bills. Take all the debts you’ve found and add up the total monthly payments for each. Also calculate the total amount of outstanding debts, loans, and bills to determine your total amount of debt.

Determine Your Monthly Income

Once you have a list of your debts, you’ll need to figure out your monthly income. Your monthly payment for consolidated debts depends on the amount you bring in each month. You need enough income to pay for everyday expenses while paying to reduce your overall debt balance. Tennessee debt consolidation works best for individuals with a steady income. Payments on consolidated debts must be reliable and consistent. If you have a commission job or irregular hourly pay, you’ll want to make sure you have enough money each month to make your monthly payment. Paying for your living expenses must come first. After paying your living expenses, you need enough to make your debt consolidation payment. Your monthly income is determined by the amount of money you have each month to pay your expenses. This money can come from sources other than a job. Other types of income include retirement, pension, social security, and unemployment compensation. Add these types of income together with all others.

Use your last few paycheck stubs or income statements to get a good estimate of your monthly income. If your most recent pay subs include more or less income than you usually receive, you may have to look further back. Using a paycheck with a lot of overtime pay or reduced hours can make it look like you make much more (or less) than you actually do. Without a proper estimate, you may find yourself in a pinch when your income dips. Only include income you can reliably expect each month. Keeping out unreliable income helps avoid stretching your budget too thin. Pay attention to how often you are paid. If you only get paid twice a month, add two paychecks together to get your monthly income. However, if you get paid every other week (bi-weekly) like most people, the amount of times you are paid each month varies depending on how paydays fall on the calendar and the best way to correctly calculate your monthly income is to multiply your paycheck by 26 (as there are 26 pay periods in the year) and then dividing the total by 12. 

You should take your spouse’s income into account in some situations. If your debts are co-signed with your spouse, determine how much of their income is needed to pay back on their portion of your debts. There are other situations when the debt is shared with your spouse. You could have prenuptial agreements or state laws where you’ve lived may divide debts between the two of you. If you are unsure about which debts are co-signed, you may want to talk with your spouse or look for your spouse’s name on bills or debt statements.

Put Together Your Budget

Next up, you’ll want to look at ongoing living expenses. The amount of money left over after you account for expenses should be used to pay toward your debts. Start creating your budget by looking first at your monthly fixed costs. Fixed costs are monthly bills that do not fluctuate more than a few dollars each month. These expenses include rent, mortgage, auto loans, cell phone, internet, cable, car insurance, and other fixed monthly payments. Write each of these payments down. Next, figure out your monthly variable costs. Variable costs are living expenses that can change month to month. These expenses include shopping, groceries, utilities, gas, and entertainment. Use 2-3 months of bank statements to estimate these expenses. Write down how much you have spent over these months. Look at the highest and lowest amounts you spent. Determine a good monthly average for each and write it down. While looking at these costs, you may find areas where you can cut unnecessary spending. Lastly, you may have expenses that only come up every so often. These expenses include oil changes, vehicle registration, insurance premiums, and other maintenance costs or payments you don’t have every single month. Look back at how much you’ve spent on each of these expenses over the last year. Divide the total of each category by 12 to determine the average monthly cost. Don’t overlook these expenses. Failure to budget for irregular expenses could cause you to fall short on a debt consolidation payment.

Once you’ve determined monthly expenses, add them all together. Subtract your expenses from your monthly income. The amount you calculate is your disposable income. If your calculations leave you with what seems like a lot of disposable income each month, you may want to look for any expenses you may have missed. On the other hand, your calculation may show no (or even negative) disposable income. Double-check your calculations to make sure you didn't miscalculate your income or expenses. This is a good time to determine if there are any places you can cut spending. If you don't have any disposable income, then debt consolidation may not be the best option for you. Use your newly created budget to stay on track with spending. Several online tools are available to assist in keeping you on target. You can use apps like Mint or Albert. Alternatively, you can use a simple spreadsheet or your bank’s budgeting tools to record your income and expenses. 

Do the Math

Use the information you’ve gathered to determine if a Tennessee debt consolidation will work for you. Look at your total debt amounts, total monthly debt payments, disposable income, and monthly expenses. Take your total debt amount and divide it by 60. This number will give you your monthly payment on your debts if paid off over 5 years without interest. Compare this number to your available disposable monthly income. The monthly payment on your total debt might exceed your disposable income. If this happens, divide your total debt amount by 120 to see if it would work better to pay it off over 10 years. You could likely benefit from debt consolidation if either monthly payment calculation is below your disposable monthly income. Debt consolidation may not be the best option if both calculations are more than your disposable income. While you are looking at these numbers, you may also want to consider the impact of your debt on your credit. Your credit score is often determined by your credit utilization ratio. To calculate this, divide your total debt amount by the total credit limits you have on all your debts. An ideal credit utilization ratio should be below 30%. The lower this number, the more likely a lender will positively view you. 

Review Your Tennessee Debt Consolidation Options

You have a few different options to consolidate your debts. First, consider the type of loan and loan terms that would be ideal for you. You can use promotional interest rates to transfer existing debts to one credit card. Pay close attention to the time frame of the promotional rates. Your budget may not allow you to pay the debts back in that short of time without incurring higher interest rates or fees. Home equity loans or mortgage refinancing might also give you a line of credit that will cover the rest of your debts. Home equity loans can often have lower interest rates. These loans will often have an origination fee which is a cost to take out the loan. Watch out for variable interest rate loans. You may end up with a less affordable payment if the rate goes up. Take caution when choosing loans secured by real estate or personal property. You could lose property through a foreclosure or repossession if you miss payments. An unsecured personal loan is another option. Research and choose a reputable personal loan lender. Don’t choose the first offer you find in the mail. Make sure the interest rates are affordable and ask about any fees when taking out a personal loan. 

Lastly, a debt management plan can also be an option. Talk to a credit counselor for more details. Be aware that credit accounts are usually closed as part of the plan. You may look to other options if you want the least impact on your credit availability and score. Avoid using your retirement accounts to consolidate or pay off your debts. These accounts often have fees to take money out of the account. You will also be hurting yourself when it comes time to retire. If the consolidation fails, you also risk losing an asset that would have been protected in bankruptcy. Debt consolidation loans are great for most unsecured loans and bills. Avoid using consolidation options for mortgage and real property debts. You can always attempt to refinance or modify these loans to get more favorable terms. These loans also have lower interest rates and longer terms, so it is best to leave them be. The same applies to car loans unless you have a poor interest rate. Finally, evaluate other long term debts like student loans for consolidation. Student loan servicers have their own consolidation or income-based repayment plans that would serve you better than general debt consolidation.

Apply for a Tennesse Debt Consolidation Loan

Not every Tennessee debt consolidation loan is equal. If a deal sounds too good to be true, it usually is. Be leery of offers you receive in the mail. Also use caution around pushy lenders, especially if they want money upfront. Legitimate organizations don't ask for money before they've provided any service. Research lenders as you go through the application process. Do an internet search for reviews about your lender. Check with the Tennessee Attorney General or the Better Business Bureau to see if there are any complaints about the lender. If you are unsure about a lender, shop around more. As you apply, you may also want to wind down your use of credit card debt. You don’t want to use the newly available credit to get back into the same situation. You can cut up your existing cards to avoid using them. It’s best to leave them open, but not use them. Closing accounts can lower your credit score.

How to Stay Current with Payments After Consolidating Your Debts in Tennessee

There are a few things you can do to make sure your Tennessee debt consolidation loan payments are timely and current. If possible, choose a due date when you know you’ll have the money. Pick a day after you receive your paycheck or income. Avoid scheduling the due date at the same time as another large expense, like your mortgage or rent. Set up automatic payments from your bank account. Sticking to your budget means you should also put money aside for irregularly timed expenses like vehicle registrations and oil changes. If your budget allows, set additional money aside and make the occasional extra payment toward your Tennessee debt consolidation loan. Reward yourself knowing that you'll be paying off your Tennessee debt consolidation loan sooner and with less interest. Alternatively, you can use some of the extra funds in case of an emergency. If you do have an emergency, you may consider temporarily using a credit card, but paying it back as soon as possible to avoid getting back into trouble.

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Tennessee Debt Management Plan

A debt management plan is one way to fully repay your existing debt. Often, the debt management plan pays your creditors back at better terms, which saves you money in the long run. As mentioned above, a debt management plan occurs after you have your budget counseling session. The debt management plan creates a single monthly payment designed to fit your budget. The plan lasts for about five years, but you can make extra payments without any penalty. While there isn't a charge for credit counseling, debt management plans do have some nominal fees that vary depending on the size of your payments. Overall, a debt management plan could be a great option to get out from under an unmanageable amount of debt and work toward good credit.

Tennessee Debt Settlement

Unlike a debt management plan, Tennessee debt settlement involves paying less than what you owe. It’s a good option if you have some funds available to make a lump sum payment. It works better if you have a manageable amount of creditors. This way you can get everyone on board and won’t have to worry about any holdouts. You may also consider a settlement when your credit score is already low is because of late or irregular payments. The debt settlement will bring relief, but it won’t boost your credit. As always, be cautious when looking at debt settlement options. Many settlement companies are not trustworthy. Creditors are also under no obligation to settle with you. You may also want to ask about the tax consequences if a creditor does forgive some of your debt.

Tennessee Bankruptcy

Ultimately, if your budget shows that you can’t afford your monthly payment even after a debt consolidation, you may want to consider bankruptcy. A Tennessee bankruptcy can eliminate your unsecured debts and help you get a fresh start. Upsolve can assist you in preparing the paperwork necessary to file a bankruptcy. Use the Upsolve screener to determine if your case qualifies for our assistance. 

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

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