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How to Consolidate Your Debts in Virginia

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In a Nutshell

Before developing a plan of action, you need your monthly bills, pay stubs, bank statements and credit reports. You will use these documents to decide the best option for reducing your debts.

Written by Lawyer John Coble
Updated January 2, 2020

Across Virginia, people from all walks of life suffer from difficult financial situations. In the D.C. suburbs and other urban areas, the primary driver of financial difficulties is the high cost of living. In some of the rural areas such as the coal country of southwestern Virginia, the primary driver of financial difficulty is high unemployment. Few people are lucky enough to live their entire life with no financial challenges. Even the founder of the University of Virginia suffered from debt to the extent that at the time of his death, he was considering selling his home to liquidate his debts. That man's name was Thomas Jefferson and the home was Monticello. Mr. Jefferson also served as the third President of the United States and wrote the Declaration of Independence. If Thomas Jefferson can suffer such a financial catastrophe, it can happen to anyone. One way to get ahead despite a large debt load is debt consolidation. A debt consolidation uses a new loan to pay off your high-interest debts so you end up having only one loan. Virginia debt consolidation options can be any of the following types of loans: unsecured personal loans, home equity loans, home equity lines of credit, and credit card balance transfers.

Debt consolidation can help you in many ways. By having a lower interest rate, you can save a lot of money. With debt consolidation, you have a single monthly payment instead of several monthly payments. This makes it much less likely that you will miss a payment and incur late fees. Debt consolidation gives you a clear path to becoming debt-free instead of making many payments that don’t make noticeable reductions in your balances. There are some risks with debt consolidation. If the interest rate on your debt consolidation loan isn’t lower than the interest rates on the underlying debts, you lose much of the benefit of debt consolidation. If you use a credit card balance transfer to consolidate your loans but don’t pay off the new credit card before the introductory low interest rate expires, you could incur higher interest rates than the original loans. If you default on a debt consolidation financed by a home equity loan, you could lose your home. Most people that use a home equity loan to consolidate their loans also consider the origination fees for a home equity loan. The origination fees reduce the benefit of the lower interest rate. 

Learn More Through Free Nonprofit Credit Counseling 

Credit counseling is a great place to start for anyone trying to manage their debt. Credit counseling itself is a free service. Credit counseling agencies usually provide other services besides credit counseling. These services may include debt management plans, post-disaster financial recovery, bankruptcy counseling, and more. The credit counseling agency may charge a fee for these other services, but not for credit counseling itself. To make sure that you’re dealing with a reputable credit counseling agency, check that they are members of the National Foundation for Credit Counselors. By looking at your monthly payments and other information, a certified credit counselor will help you in many ways. They will assess your finances, establish financial goals, and develop a plan of action to achieve your financial goals. Remember that credit counseling is the primary job for these trained counselors. This is what they do every day. They are experts. They will spot problems and solutions that you will not see. Unless you are an expert in consumer finance, handling these challenging financial issues yourself is like trying to perform surgery on yourself. Unlike a surgeon, these trained counselors are free.

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How to Consolidate Your Debts in Virginia

Before developing a plan of action, you need your monthly bills, pay stubs, bank statements and credit reports. You will use these documents to decide the best option for reducing your debts.

Collect the Details About Your Debts 

You need the most recent statements or bills from your lenders. This means all bills that aren’t for monthly living expenses. For example, a bill from your current cable provider wouldn’t be from a lender since the cable provider isn’t loaning you money. Bills from credit card companies, car loan companies, finance companies, and mortgage companies are the bills from lenders that you need. When looking at your bills, pay particular attention to the interest rate, the monthly payment, and the balance. Make a note if the bill is a joint debt with another person such as your spouse. It is important to know if the bill is for secured debt or unsecured debt. Secured debts are debts where the lender has a property interest in what you are buying and can repossess it if you stop making payments. The most common secured debts are car loans and mortgages. The most common unsecured debts are credit card debt, medical bills, and student loans. If a bill is for a student loan, it will need special consideration. It is important that you get your free credit report. Your credit report will often show debts that you may have forgotten. The credit report will also help you find errors that may be hurting your credit score. Regular checking of your credit report is important for maintaining your credit score. 

Determine Your Monthly Income 

Your monthly income is as important as your debts because it’s the key factor in determining what you can afford to pay. The first documents to look at are your pay stubs. Also, look at any documents related to other forms of income such as social security income. If you are self-employed, you will need to look at your bank statements or business records for your income. Consider any other incoming money such as aid from family members when determining your income. Debt consolidations work best with a steady income. You could fall behind on your debt consolidation loan if your income is less than normal for a month. A late payment on these personal loans could result in late fees and higher interest rates. In short, falling behind could reduce or end the benefits of your debt consolidation and even leave you in a worse position. 

How often you get paid is also important. For example, if you have a weekly payday and you take home $500.00, your monthly take-home income is not $2,000.00. In this case, your monthly take-home income would be $500.00 times 52 pay periods divided by 12 months = $2,167.00. You are only paid twice a month if you get paid on the same date each month, such as the 1st and the 15th. If you have a payday once every two weeks, that is not twice a month. If you have a payday every two weeks and your average take-home pay is $1,200.00, you would calculate your monthly income as $1,200 times 26 pay periods divided by 12 months = $2,600.00 per month.

Put Together Your Budget 

Break your expenses into "fixed expenses" and "variable expenses." Think of fixed expenses as expenses that are the same every month such as your rent or your car payments. These expenses don’t change very often. Variable expenses are expenses that change monthly such as the amount you spend on groceries, gas, and entertainment. Most people look at a few months of bank statements and average these expenses to get a good idea of what their budget should be for these variable expenses. You also have to consider expenses that don’t come up every single month, like oil changes. For an expense that only occurs once every three months, you would multiply that expense by four and divide it by twelve. For example, an oil change that costs $50.00 every three months is $50.00 times 4 divided by 12 for an expense of $16.60 per month. For an expense that only comes up once a year, you would divide that expense by twelve. After calculating your income and expenses, how much do you have left? This is what you have for monthly payments on your debt consolidation.

Do the Math 

Now that you have calculated the disposable income you have to pay off your debt, you are almost ready to consider your options. There is one more step to take. Look at the total amount of unsecured loans that you plan to consolidate. Unsecured debt includes the following types of debt: credit card debt, medical bills, and personal loans. Take this number and divide it by 60. This will give you a rough idea of your monthly payments for a loan term of five years. If you want to consider a ten-year plan, divide the number by 120. Next, compare your income available to pay debts with your expected debt payments. If you think you can make all the payments, go for the five-year plan. If you can't pay the debt consolidation off in a ten-year plan, then debt consolidation may not be the best solution for you.

Review Your Virginia Debt Consolidation Options 

You have a few debt consolidation options in Virginia. These include balance transfers on credit cards, unsecured personal loans, home equity lines of credit, and debt management plans. There are some debts that are better handled outside of a Virginia debt consolidation loan. These debts include mortgages and auto loans. Mortgages are usually for much longer-terms than debt consolidations. Mortgage refinancing to a lower interest rate is the better choice for these long term debts. Please be sure to consider the origination fees when making a refinance decision. Car loans usually aren't included in debt consolidations. This is because the interest rate for car loans is usually less than the interest rate for a debt consolidation loan. Another consideration is that using debt consolidation for a car loan could create problems if you choose to change to another type of debt relief plan. Student loans usually have a remaining term longer than the debt consolidation plan and have a better interest rate than the debt consolidation rate. Even if when comparing the loans, the student loan looks good for debt consolidation, it often isn’t due to the availability of income-based repayment plans for these loans.

Apply for a Virginia Debt Consolidation Loan 

When applying for a Virginia debt consolidation loan, you need to make sure that you are working with a reputable lender. Offers in the mail that sound too good to be true and have a lot of fine print are the type of debt consolidation companies that you need to avoid. It is a good idea to look to the Better Business Bureau and check the debt consolidation company’s rating before making any final decisions. With debt consolidation, you can keep your credit cards. It is a good idea to only keep one of these cards in your wallet and use that card only for emergencies. It is very helpful to remove your credit cards from any online accounts like Google Pay, Amazon, restaurant apps, and subscriptions. This will keep your credit cards from being accidentally charged. Prepaid cards and debit cards are better for online purchases since they won’t increase your credit balance. When using debit cards online it is best to make sure your card has an app with a card locking feature and to only unlock the card when using it. Be mindful that using the new credit that you will have available from the paid off cards defeats the purpose of the debt consolidation. This will lead to more debt. Excessive debt will always lead to unnecessary stress, anxiety, and misery. Creating a realistic budget and then sticking to it is one of the most important parts in any debt relief plan and will help you create good budgeting habits that you can benefit from for the rest of your life! 

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

You need to make sure that the payment date for your debt consolidation plan makes sense. That is, the payment date shouldn’t fall on the same date as a large payment like rent or a car loan. If your pay periods are the same each month such as with a monthly or semi-monthly pay period, your loan payment date should fall near one of these paydays to make sure you have enough money to make the payment on time. If your income is stable, you could consider setting up automatic monthly payments through your bank account. That is the best way to avoid missing a payment or paying late. Don’t use a recurring bank draft if it’s likely to cause you to have expensive overdrafts. Most people track their spending to make sure that they stay on budget. A free service such as Mint can be helpful with this. You can make extra payments to pay off the consolidation loan faster when you see that you have enough money to meet your budgetary needs and you have enough savings for an emergency. Great tools for increasing your savings are Albert and Acorns. If you are using a debt consolidation and you have an emergency before you have enough money in your savings account, it’s ok to use one of your available credit cards, ideally the one with the lowest interest rate. After using the credit card, it’s a good idea to set up a "mini-repayment plan" to get that card paid off as soon as possible.

Virginia Debt Management Plan

In a Virginia debt management plan, the credit counseling agency contacts your lenders and negotiates deals with them based on what you can afford and at a lower rate. You then make a single monthly payment to the credit counseling agency and the agency pays each of your lenders. You can think of a debt management plan as a debt consolidation which is not based on a loan. A debt management plan is useful for consumers that can’t get a personal loan for debt consolidation due to a low credit score.

Virginia Debt Settlement

A Virginia debt settlement is when you negotiate to pay off loans for less than the full balance with each lender. This will hurt your credit score. It makes sense to use debt settlements when you already have bad credit, you do not have too many lenders, and you have enough money to make meaningful lump-sum payments that lenders are willing to accept. With debt settlements, the lenders will subtract the amount you paid for the debt from the total loan amount owed and report it to the IRS, which will count this difference as income. You will have to report this as income on your tax return even though you received no money. Be aware that while there are good ones, some debt settlement companies are not trustworthy. A good way to avoid getting scammed by a debt settlement company is to check with Virginia Attorney General's Consumer Complaint Database and the Better Business Bureau.

Virginia Bankruptcy

If the budget you prepared shows that you don’t have enough money to make the necessary monthly payments on your loans, it may be time to consider a Virginia bankruptcy. If you’re worried that you can’t afford to hire an attorney, keep in mind that you don’t have to hire one to get relief under Chapter 7 bankruptcy. If your situation requires an attorney to make sure you get all the protections needed, we can connect you with a bankruptcy attorney in your area. While bankruptcy is not right for everyone, if you’re having to choose between buying food and paying your credit cards or medical bills, it may be right for you.

Written By:

Lawyer John Coble


John Coble has practiced as both a CPA and an attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Lawyer John Coble

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