How to Consolidate Your Debts in Utah

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In a Nutshell

Continue reading to learn more about how debt consolidation works, preparing for a debt consolidation plan, and other options available to you to lower your monthly bills.

Written by Attorney Alexander Hernandez.  
Updated January 2, 2020


If you think you are alone in Utah when it comes to being in debt, you aren’t. The Beehive State is ranked tenth in the nation in household debt according to KSL News from Salt Lake City. Household debt includes mortgage(s), auto loans, credit cards, student loans, personal loans, and home equity loans. 

Debt consolidation is the process of obtaining a new loan to pay off your credit card debt(s) and with good credit, it could be the right option if you need debt relief. The benefits include a lower monthly payment, lower interest rate, and the convenience of a single monthly payment. Debt consolidation includes a credit card balance transfer, however, note when the promotional period expires, you may have a higher interest rate than you currently have. Also, by freeing up your credit cards, you may inadvertently get into more debt. If you refinanced your unsecured debt with a home equity loan that now becomes a secured loan attached to your house. If you stop making payments, you risk losing your home to a foreclosure. Costs for a home equity loan are also increased due to loan origination fees.

With a debt consolidation, you are paying back 100 % of your outstanding debt while with a debt settlement you are agreeing to pay a specific amount that is less than your total balance to a specific creditor. For example, a creditor has filed a lawsuit against you and you reach an agreement whereby you pay back a percentage of the original debt. That’s a debt settlement. Also, a debt settlement has tax consequences and because you settled your debt for less than what you owe, this will negatively impact your credit score, unlike a debt consolidation.

Learn More Through Free Nonprofit Credit Counseling

Credit counseling is a form of financial education where you work with a credit counselor to discuss your finances, develop a budget, and determine your best options. Anyone can benefit from credit counseling because it provides you with the knowledge and tools you need to learn how to best deal with your finances and take steps toward being debt-free. Certified credit counselors will develop a debt management plan, a form of debt consolidation, by working with credit card companies to consolidate your debt payments, personal loans, get you a better interest rate, and improve your credit score. Besides debt management plans and credit counseling, credit counseling agencies also offer foreclosure and bankruptcy counseling. However, credit counseling agencies don’t offer loan options to consolidate your debt as they’re not a bank. Always make sure the agency you are working with is a nonprofit credit counseling agency accredited by the NFCC to ensure you’re getting the best possible information and advice.

How to Consolidate Your Debts in Utah

Continue reading to learn more about how debt consolidation works, preparing for a debt consolidation plan, and other options available to you to lower your monthly bills.


Collect the Details About Your Debts

First, obtain your recent credit card statements to know your full balance. Do this with all your household debt. Focus on the following information: interest rates, monthly payments, current outstanding credit card balance, and categorize the different types of debt into secured and unsecured. Examples of secured loans are car loans and mortgage(s). Unsecured loans include credit cards, personal loans, and student loans. It is also helpful to get your credit report to make sure all your debts are included and that there are no mistakes in your credit history. You can obtain a free credit report every 12 months.

Determine Your Monthly Income

Next, calculate your income to know how much you can afford to pay back. If your income is based on social security, know that is protected from your creditors (other than student loan creditors), so a debt consolidation may not be the best option for you. Also, it’s best not to rely on domestic support obligations like child support or alimony if you don’t reliably receive it every single month. Review your paystubs that are most consistent with a typical work week to avoid miscalculating your debt consolidation plan. If you are paid bi-weekly, multiply your bi-weekly income times 26 and divide the answer by 12 since there are 26 pay periods throughout the year. Inconsistent income such as commission-based jobs may make it difficult to determine how much you can afford each month so a debt consolidation plan may not be your best option. 

Put Together Your Budget

When calculating your budget, certain bills are the same amount each month such as your rent/mortgage, car payment, and car insurance. However, since other bills fluctuate monthly, it is important to review at least the last 2 to 3 months of bank statements to account for these expenses. This will also make for an excellent opportunity to find areas where you may be overspending. Remember to include expenses you incur every few months such as car maintenance and bills that are paid annually such as real estate taxes and insurance. Average the per month costs of these bills by dividing the full amount by 12. After you have calculated your expenses, subtract that amount from your income and that is the amount of money available to pay your debts. If you have a lot of money left over, confirm that you calculated your expenses correctly. Also, don’t forget to include payments for things like monthly dental and medical bills, personal loans from friends and family, and tax debts. If you don’t have disposable income available or even a negative balance, then a debt consolidation plan isn’t a good option since you can’t afford to pay back your debts. If there is sufficient money to pay back creditors, take advantage of online tools and apps such as Mint, Albert, spreadsheets like Excel, or any other tools including your bank’s budgeting program if any, to create your monthly budget.

Do the Math

Now that you know the balance of your debt and have calculated your income and expenses, it is time to do the math and figure out how much you can afford to pay towards your debt. Start by dividing the total amount of your debt by 60 to calculate a monthly payment plan of five years without interest. Compare that figure to your disposable income to determine if debt consolidation is the right option based on your financial situation. Also, figure out your credit utilization ratio which is determined by dividing the balance of your debt by the amount of your total credit limit. This is important for several reasons, including that your credit score is impacted by the difference of your balance and credit limit. Thus, the larger the gap, the better your score. Having a good credit utilization ratio (below 30%) could give you a stronger negotiating position when applying for a debt consolidation loan with a lender.

Review Your Utah Debt Consolidation Options

Now that you calculated your income, expenses, and the total amount of debt, review the different options available to you such as a credit card balance transfer, unsecured debt consolidation loans, home equity loans, and a debt management plan. With good credit, consider a balance transfer to other credit cards, but remember to read the fine print for any transfer fees or origination fee if it is with your home mortgage. Also, confirm the interest rate you will pay when the promotional period is over on your credit card to avoid an increase in your monthly payment. If refinancing your mortgage, ideally with a lower interest rate and lower monthly payments, note that in the long run it will be more expensive because mortgages are much longer than typical consolidation loans. If you’re using a home equity loan, be careful with so-called ARMs (adjustable rate mortgages) because the interest rate changes monthly, costing you more per month and making it more difficult to stick to a budget. You should also confirm if your lender has mortgage modification programs that will lower your monthly payment and interest rates. With a mortgage refinance, know that with a default on your monthly payment you risk facing foreclosure and losing your home. That’s why an unsecured debt consolidation loan offers the least risk, especially if you are using a lender you know you can trust.

Why using your retirement account to consolidate and pay off your debt is a terrible idea

Withdrawing money from your retirement account could result in additional fees and taxes, and if those funds aren’t replaced, you will have less money available for your retirement. If you ultimately file for bankruptcy, your retirement account would have been protected from creditors, saving you money in the long run. A similar result could occur if you pay off your car loan because Utah bankruptcy exemptions include $3,000 per vehicle for a single filer. By paying off a car worth more than $3,000, you may end up having to pay anything over that amount to the bankruptcy trustee who uses that money to pay back your creditors. Student loans should also be excluded as those debts can be negotiated separately, including a forbearance if you can’t afford to make your monthly loan payments, plus there are other repayment terms such as income-based payment plans.

Apply for a Utah Debt Consolidation Loan

When applying for a Utah debt consolidation loan, avoid lenders with aggressive sales tactics, mail offers from unknown lenders and lenders that require money upfront. If it sounds too good to be true, it probably is. Protect yourself and research with reputable organizations such as the BBB (Better Business Bureau) and the Utah Attorney General.

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

Timing is everything. Avoid your due date during the same pay period as your mortgage or rent so you aren’t left without money until your next paycheck. Have your monthly payments deducted automatically from your bank account to avoid spending money on late payments and late fees. Also, start tracking your spending habits and set aside funds for in case of an emergency. Use some of the financial budgeting apps and programs mentioned above. When possible, make more than the minimum payment to pay down your debt faster which will increase your credit score.

Utah Debt Management Plan

A debt management plan is a form of debt consolidation and should be considered if you have been denied a credit card balance transfer or Utah debt consolidation loan. With a debt management plan, you will work with a certified credit counselor to budget your credit card debt and consolidate it into a single payment with a payment plan that is usually between 48 to 60 months. Note that with a debt management plan, while the initial counseling assessment is free, if you proceed, there may be a set-up fee as well as additional fees depending on numerous factors including the total amount of debt you owe and the length of the payment plan.

A debt management plan is different from a traditional debt consolidation loan because the terms of the debt repayment is being negotiated without obtaining new or additional debt. With a debt settlement, you are settling your debt for a lesser amount than originally owed.

Utah Debt Settlement

Depending on your situation, you may need to consider a debt settlement, especially if you are facing lawsuits or have bad credit. Not that third-party collection agencies and debt settlement companies don’t have to negotiate a debt settlement. Carefully review your options because it makes sense to settle one debt only if you can settle or pay off all of your other debts. Additionally, there are possible tax consequences with a debt settlement.

Utah Bankruptcy

If a debt consolidation loan, debt management plan, or debt settlement does not result in the debt relief you seek, then consider filing for bankruptcy. Remember, you aren’t alone. “Unaffordable Utah” is ranked second in the nation with the most credit card debt and even popular restaurants such as Marie Callendar’s and Perkins have recently filed for bankruptcy. So, if you need to file for bankruptcy, Upsolve is here to help, not only with hundreds of articles on bankruptcy and related subjects, but by providing our bankruptcy service free for those that qualify. We can also help those that don’t qualify, or would simply prefer to speak to a lawyer first by connecting them bankruptcy attorneys in their area.



Written By:

Attorney Alexander Hernandez

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Since graduating from Nova Southeastern School of Law in 1999, Alexander Hernandez has focused a majority of his law practice on bankruptcy law. He was a founding partner of the South Florida Bankruptcy Center which focused exclusively on Chapter 7 and Chapter 13 bankruptcies. Al... read more about Attorney Alexander Hernandez

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