Continue reading to learn more about debt consolidation plans and debt relief.
Written by the Upsolve Team.
Updated January 2, 2020
Seattle’s own Tully’s Coffee was able to maintain its brand by filing a Chapter 11 bankruptcy case in October of 2012. People and companies make mistakes. The Constitution, through Congress, gives every American individual and business the right to file bankruptcy and get a fresh start. If your financial situation includes a significant amount of high-interest debt that’s causing you to miss making the minimum payment each month or incur late fees because of late payments, a possible way to get debt relief is a Washington debt consolidation loan. Most people consider a new loan for debt consolidation before filing bankruptcy. A Washington debt consolidation loan may be available whether you have good credit or bad credit. Debt consolidation eliminates all other debt payments and substitutes one loan, leaving a single monthly payment. Writing one, and only one, check in a lump sum payment amount every month to satisfy every debt is a major step in getting debt-free. A bank loan, personal loan, refinancing, credit card balance transfer, line of credit, and home equity loan are just some good consolidation options. Having a good credit score and credit history can help you get a better interest rate on the loan.
However, there are some risks to debt consolidation loans. Because this one payment represents every one of your debts, the repayment terms of a debt consolidation loan will include a high monthly payment, which may make it difficult to make up if you miss one payment. There are risks associated with using a secured consolidation loan. If you use a refinancing or home equity loan to consolidate debt, you risk losing property, including a personal residence, if you fail to repay the loan.
Learn More Through Free Nonprofit Credit Counseling
If you have high-interest debt that is secured, such as car loans, and unsecured, such as credit card debt and student loan debt, a credit counseling agency can explain your debt relief options for free.
Credit counseling is a great first step to learning more about your spending habits, different types of debt, and overall financial situation. Credit counseling services offer debt and budget counseling as free services. Consumers work one-on-one with a trained counselor to identify financial issues, set goals, and form a plan of action to accomplish these goals.
Many “businesses” try to take advantage of consumers who are in trouble and need help. They’re scams to take your hard-earned money. Check that your session is offered by anNFCC accredited nonprofit credit counseling agency to make sure you get the best possible information from a reputable source.
How to Consolidate Your Debts in Washington
Continue reading to learn more about debt consolidation plans and debt relief.
Collect the Details About Your Debts
The rest of this guide will focus on the steps you can take to obtain a debt consolidation, as well as other available options. If you follow these steps and work with a reputable lender, you can solve your problems and restore your financial situation. The first step to consolidate debt is to gather the necessary information for each individual debt you currently owe. Most people have different types of debt. Use the most recent statement for credit card debt, student loan debt, auto loans, or other bills. You may also want to add up the totals for the different types of loans. To determine whether a consolidation loan makes sense requires knowing the amount of total debt and the loan terms, including loan amount, minimum payment, current balance, and interest rate, for each individual debt. All the interest rates probably vary, which affects the final consolidation amount that you’ll pay. Classifying each bill by category based on whether it’s secured or unsecured, student loan, or non-student loan, is necessary to calculate the monthly totals. To find a good record of this information, you can get a free credit report, which will help verify all of the information needed for the debt consolidation.
Determine Your Monthly Income
After gathering all the details regarding your debts, the next step involves determining your income. If you figure this incorrectly, you’ll risk being unable to make the monthly payment and the debt consolidation will fail. The debt consolidation payment should fit the amount of your monthly income. The important thing to note here is that you can’t increase monthly expenses by taking out new debt. This defeats the purpose and eliminates the benefit of making one set minimum payment every month. If you’re a regular wage-earner, calculating monthly income shouldn’t be difficult. If you’re paid every two weeks, the math is easy as long as you remember that you get paid 26 times a year, which is not the same as twice a month.
Commission only or irregular income may make debt consolidation challenging if it’s not clear that there is enough income to pay for living expenses and the monthly payment for the consolidation loan. Many people have income from non-employment sources. Anyone who is retired, unemployed, on social security, or other assistance fits this description. You must carefully review this income and its sources to ensure that the information is reliable and consistent.
Put Together Your Budget
After estimating your income, the next step in getting a Washington debt consolidation loan is to estimate your monthly expenses, subtract them from income, and determine your budget. This includes fixed and variable expenses where you make a single monthly payment. Fixed expenses are those that don’t fluctuate by more than $10 each month. Examples would be rent/mortgage, cell phone, internet, cable, and car insurance. Variable expenses fluctuate every month and include groceries, gas, and entertainment expenses. The result, when dividing all your expenses by 12, will yield the total amount of your monthly expenses. You can determine a monthly average of fixed and variable expenses by reviewing bank statements for the last two to three months, which can also provide a good opportunity to identify problem spending habits. Each month of the year may have an unexpected, miscellaneous expense, like your son’s scout trip to Mt. Rainier, that you must include in your budget. To do so, divide the total amount you’ll need in a year by 12 to include the item in your monthly spending plan.
Once you’ve determined all your expenses, subtract them from your income, and whatever is left is your disposable income, which is the total amount of money you have available to pay creditors. If the result is little or no disposable income based on limited funds left after deducting living expenses, debt consolidation probably won’t work, and you’ll need to consider other debt relief options.
Do the Math
What’s the next step? The amount of your disposable income will help determine your next steps, and if your consolidation options are realistic. The calculations of monthly income, whether fixed or variable, and expenses, whether fixed or variable, must be complete and accurate to determine whether you are a good candidate for debt consolidation. Next, calculate total debt divided by 60 to determine how much the monthly payment would be to pay off the total balance without interest in five years. Divide by 120 to determine the same for ten years.
Then, compare this number with the income left after expenses. This will result in the amount of your disposable income and give you an initial idea of whether debt consolidation is an option based on the specific facts of your financial situation.
Review Your Washington Debt Consolidation Options
Now review your debt consolidation options. You should consider a credit card balance transfer, an unsecured Washington debt consolidation loan, a home equity loan, and even a debt management plan for something a little different. A credit counselor can help you make your decision by explaining the pros and cons of everything based on your specific situation. A family member or friend may even be willing to make a personal loan. On important thing to keep in mind is the origination fee you’ll have to pay to take out the new debt. If you refinance with an Adjustable Rate Mortgages (ARM) for your first mortgage and/or home equity loan that is a variable interest rate loan, it may be costlier than you think as the interest rate increases to a higher interest rate. If you refinance with another lender, there are also refinancing or transfer fees to consider. Also, refinancing a mortgage and using your home’s equity means converting unsecured debt into secured debt. The risk here is that if you default, you can lose your home. You must include the expenses for an appraisal and the origination fees if you choose a home equity loan. If you have good credit, you may be able to get an unsecured debt consolidation loan. It has the fewest risks since you don’t risk losing the property if you default. A credit card balance transfer is only beneficial as a consolidation option if you can pay it off during the promotional period at a better interest rate. A consolidation option that’s a little different from the others is a debt management plan, which is a form of debt consolidation without getting a new loan. Your credit card accounts will be closed as part of the plan. Unfortunately, this will temporarily lower your credit score but when you’re done with the plan you will have paid all of your debts in full and your credit score is likely better than when you started this process.
If you can’t afford a debt consolidation loan or it simply doesn’t work because you have too few debt consolidation options, bankruptcy is another way to get debt relief. You can talk to a bankruptcy attorney to learn more about it.
Apply for a Washington Debt Consolidation Loan
Now it’s time to apply for your Washington debt consolidation loan. The first thing to remember is that there are a lot of shady and unscrupulous lenders to avoid. Stick with banks or lenders with whom you already have a relationship. Beware of lenders who are aggressive in trying to sell their product. In fact, some companies often charge high fees for doing the same things you can do on your own. Be wary about paying a credit repair company in advance before they perform any service for you. A personal loan can avoid all these problems so it’s worth investigating.
Washington requires credit repair organizations to provide consumers with a copy of “Consumer Credit-File Rights Under State and Federal Law” before they sign a contract. The contract itself must clearly explain the services to be performed, any guarantees, your obligations, and the time it will take to realize any results.
Washington also limits the origination fees that a for-profit debt-relief company can charge consumers. Under Washington law, the total fee for debt adjusting services can’t exceed fifteen percent of the total debt listed in the contract. Federal law (the Telemarketing Sales Rule) prohibits companies that market debt relief services by phone from charging any fee before debt settlement.
Keeping a credit card account open during the period of the consolidation loan may be another problem source since it allows you to incur additional debt that can make your budget hard to follow.
How to Stay Current with Payments After Consolidating Your Debts in Washington
A Washington debt consolidation loan, whether a balance transfer, personal loan, or home equity loan, only works if you make the monthly payment. Make sure the date it’s due is a day of the month when you have the income to make the minimum payment. You don’t want due dates for different types of loans to fall on the same day. Don’t be afraid to ask your lender if you can change the due date if it doesn’t work for you. The easiest way to make sure your monthly payment is made on time is to set up automatic payments. You should try to track the rest of your spending – mortgage/rent, utilities, food, gas – and see if you’re keeping with your budget. Catching issues with your budget or your spending habits early allows you to make small adjustments along the way. Review your credit report and keep track of your credit score. As your financial situation improves, you’ll see positive results, which will build your confidence in sticking to your debt consolidation or debt management plan.
If you can save some money for a rainy day, do so! Consider making extra payments if you can when you have a true surplus of money, provided you are also adding to your emergency savings account. If you’ve set aside some money every month as savings that is also an emergency fund, you should be prepared for most emergencies.
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Washington Debt Management Plan
Whether you’re a husky, a cougar, or neither, a Washington debt management plan (DMP) is a form of debt consolidation that can offer debt relief. Because there are no credit score requirements, a DMP is a great alternative for anyone who is denied a credit card debt consolidation loan or credit card balance transfer. Working with a trained and certified counselor, consumers can receive a single, monthly consolidated payment, repayment plan designed to fit their budget, and a reduced interest rate on most credit card accounts.
Washington Debt Settlement
Another way to get debt-free is debt settlement, which is different than a debt consolidation loan. A Washington debt settlement is a good option when your credit is already damaged, but you have money available to make lump-sum payments to a reasonable, workable number of creditors. The risk here is that because each creditor must agree to a debt settlement, not every, or even any, creditor may want to settle. Another downside of a debt settlement is that there are tax consequences for debt forgiveness income. The IRS considers the amount of debt you don’t pay because of the debt settlement as potentially taxable income.
Most people should only consider filing bankruptcy after investigating options such as a debt consolidation loans, a debt management plan, or debt settlement and learning more about each through credit counseling. If debt consolidation and debt settlement are just not available, perhaps because of bad credit or because you don’t have any disposable income after paying living expenses, it may be time to consider filing a Washington bankruptcy case. Bankruptcy can help you get a fresh start, and it can even give you three to five years to reorganize your financial situation as part of a Chapter 13 bankruptcy.
Upsolve can help. We help guide eligible individuals through the bankruptcy process by helping them generate their own forms. These forms are reviewed by an Upsolve bankruptcy attorney for completeness, then given back to the user to file pro se. If your case is more complicated or if you simply prefer having a lawyer by your side, we can also connect you with a bankruptcy attorney in your area.