How to Consolidate Your Debts in Wisconsin

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Written by Attorney Alexander Hernandez.  
Updated January 2, 2020

Summary

Continue reading to learn more about debt consolidation options in Wisconsin and the best option available to you.

In 2019, 589 farms filed for bankruptcy. This is the most since 2011 with Wisconsin being hit the hardest of all the dairy states. NPR reported that 10 percent of dairy farms in Wisconsin will be out of business this year. This has resulted in increased unemployment for the Badger State. But as Wisconsin keeps getting badgered financially, Upsolve is here to help you free of charge. Continue reading to learn about the different debt relief options available to you.

A debt consolidation could help you get back on track financially. With good credit, an unsecured debt consolidation loan or a personal loan will help pay off your high-interest debt. Benefits include a lower monthly payment, lower interest rate, and the convenience of a single monthly payment. Another form of debt consolidation is a credit card balance transfer where you transfer your balances to another credit card. If done during the promotional period, confirm the interest rate when the promotional period expires. If not, you may end up with a higher interest rate than you currently have, costing you more money. 

A refinance of your mortgage or a home equity loan is another option, depending on the amount of equity in your home. Equity is determined by subtracting the mortgage balance from the value of your house. While a home equity loan will reduce your monthly payments, it will cost you more in the long run. Also, since you increased the balance on your mortgage, a default on your monthly payment puts you at risk of losing your property with a foreclosure. That’s why an unsecured debt consolidation loan offers the least risk but check with the lender for transfer fees. If your consolidation is done with a mortgage refinance, ask about the costs of an appraisal and loan origination fees. 

Depending on your financial situation, there are differences with each option. With a debt consolidation, you are paying back 100 percent of your debt by getting a new loan. With a debt settlement, you are only paying a portion of your original balance. Debt settlements also have tax consequences and will negatively impact your credit score.

Another form of debt consolidation is a debt management plan which includes credit counseling. Continue reading to learn more about a debt management plan, also known as a DMP.

Learn More Through Free Nonprofit Credit Counseling

Credit counseling can be helpful to anyone who needs debt relief. A certified credit counselor experienced in finances will teach you budgeting techniques, including how to track your spending habits. A monthly payment plan is created based on your budget which may include a lower interest rate. However, note the credit counseling agency is only negotiating the repayment terms of your debt, not getting a new loan to consolidate your debt. Credit counseling agencies also don’t offer loans as they are not banks. Other services offered by credit counseling agencies are free bankruptcy and foreclosure counseling. Check with the NFCC to confirm the agency you are working with is a nonprofit organization. 

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How to Consolidate Your Debts in Wisconsin

Continue reading to learn more about debt consolidation options in Wisconsin and the best option available to you.


Collect the Details About Your Debts

Review your most recent credit card statements to know the total amount of debt you have. Getting your credit report also helps confirm all your creditors will be included in your budget. As you review your credit history, look for any mistakes. The Fair Credit Reporting Act not only entitles you to a free credit report every year, but there is no cost to filing a dispute.

Next, categorize the types of debt into secured and unsecured. Examples of secured debts are car loans and mortgage(s). Unsecured debt includes credit cards, personal loans, medical bills, and student loans. As you review your debts, focus on the interest rates and monthly payments as this information will be needed when planning your budget.

Determine Your Monthly Income

Gather your recent pay stubs to calculate your income to determine how much you can afford to pay back. Review pay stubs that are most consistent with a typical workweek 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. 

Debt consolidation works best for those with steady income. Commission-based jobs and income from child support or alimony may make it difficult to determine a payment plan because the money is not guaranteed each month. Also, if your income is based on Social Security, a debt consolidation may not be the best option for you since your income is exempt in a Wisconsin bankruptcy.

Put Together Your Budget

After gathering all your debt, now figure out all your expenses. If you fail to include all your monthly bills, when those bills are due, you will not have enough money to pay for them and may end up getting into more debt because of it. Certain expenses are easy to track since they are fixed amounts such as your rent/mortgage, car payment, and car insurance. However, since other bills fluctuate monthly like gas, groceries, and utility bills, it’s important to review at a minimum the last 2 to 3 months of bank statements. Look for occasional expenses such as car maintenance and don’t forget annual bills like real estate taxes and property insurance. To determine the monthly average of these expenses, divide the full amount by 12. Reviewing your bank statement is an excellent opportunity to find any areas of overspending. If you can reduce expenses, the extra money could be used to pay more than the minimum payment. Paying down your debt faster will increase your credit score. 

Next, subtract your expenses from your income. If you don’t have disposable income available or a negative balance, then a debt consolidation plan isn’t a good option since you can’t afford to pay back any of your debts. If you have too much money left over, review your income and expenses again for any mistakes, so you’re not accidentally setting yourself up with a payment you really can’t afford. Use budgeting programs and apps such as Mint, and Albert to help track your expenses. Check your bank’s website for free budgeting programs as well.

Do the Math

Start calculating by dividing the total amount of credit card debt by 60 months which equals five years. The goal is to be debt-free by then. Compare your monthly debt total to your disposable income. If you have enough money left over, then a debt consolidation is a good choice. Also, figure out your credit utilization ratio if you are applying for a Wisconsin debt consolidation loan. Credit utilization ratios are used to calculate your credit score and a good number is at or below 30 percent. The better the score, the better position you are in to negotiate for a favorable consolidation loan with your bank. To figure out your credit utilization ratio, get the total amount of your debt and divide it by your credit limit.

Review Your Wisconsin Debt Consolidation Options

Since you have now calculated your income, expenses, and the total amount of your debt, it’s time to review the different types of loans available to you. A balance transfer to one or more credit cards is a good choice if you have a lower interest rate. Refinancing your mortgage or a home equity loan are both good options that will give you a lower monthly payment, but long-term it will cost you more. If the bank offers an Adjustable Rate Mortgage, known as ARM, ask instead about mortgage modification programs that may reduce your monthly payments. The interest rate on ARM’s change monthly, which means so does the amount of your monthly payment. This will make budgeting more difficult. Find out about hidden costs such as property appraisal fees and loan origination fees. If you don’t qualify for a Wisconsin debt consolidation loan, then consider a debt management plan which is another form of debt consolidation.

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

While tempting, withdrawing money from your retirement account to pay off your credit card debt will cost you more since the amount you withdraw is taxed. This also results in having less money available for retirement. Because retirement accounts are protected from creditors and exempt in bankruptcy, a debt consolidation may not be the best choice for you.

Because of Wisconsin bankruptcy exemptions, paying off your auto loan leaves your equity unprotected. The amount of equity over the exemptions could result in the bankruptcy trustee having you pay that amount to settle your bankruptcy case. Those funds are then used by the trustee to pay back your creditors. It is also recommended that you don’t pay off your student loans.  Student loans can be negotiated separately and lenders offer flexible payment plans. If you need to reduce your student loan monthly payment, apply for an income-based payment plan.

Apply for a Wisconsin Debt Consolidation Loan

Did you receive an advertisement from a lender with a check enclosed? Don’t cash that check until you have read the fine print and researched the lender via trustworthy sources such as the BBB (Better Business Bureau) and the Wisconsin State Attorney General. Both organizations have websites with excellent information on companies including fraud alerts. Try applying first for your loan consolidation with your local bank. Be careful with lenders that want money upfront, offer high-interest rates, and use high-pressure sales tactics. If a debt consolidation loan doesn’t work for you because your credit isn’t good enough to get approved for a consolidation loan, consider a debt management plan.

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

Now that you are tracking your spending habits and taking steps towards being debt-free, avoid certain pitfalls that will cost you money unnecessarily. The due date on your debt consolidation loan shouldn’t be during the same pay period as your larger expenses such as your mortgage or rent. You don’t want to be in a situation where you have little to no money available until your next paycheck. To avoid late payments and late fees, have your monthly payments withdrawn automatically from your checking account. Start an emergency fund or open a savings account with the money you are saving.

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Wisconsin Debt Management Plan

A debt management plan is a form of debt consolidation that will help you get back on track financially. If you were denied a balance transfer, a personal loan, or a debt consolidation loan, a Wisconsin debt management plan is a good choice. Working with a certified credit counselor to budget your credit card debt, a debt management plan could consolidate your debt into a single payment. Payment plans are usually between 48 to 60 months, which gives you time to get organized financially. Credit counseling agencies also provide the initial counseling assessment free of charge, but there may be additional fees that should be reviewed with your credit counselor.

A traditional debt consolidation loan is different from a debt management plan. Also known as a DMP, with a debt management plan you are not getting a new loan or debt, only renegotiating the payment terms. A debt settlement means reaching an agreement with a creditor, usually because of a lawsuit, to pay back less than the original balance. Continue reading to learn more about debt settlements.

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Wisconsin Debt Settlement

If a creditor has filed a lawsuit against you or you have bad credit, consider a Wisconsin debt settlement. While your creditors aren’t required to negotiate a debt settlement, debt settlement companiestry reaching an agreement where you only pay back a portion of the total debt. This works well with lump-sum payments. Remember, there are tax consequences for the portion of the debt that was forgiven. For example, if you owe $1,000 and reach a settlement to pay back $600, you could be taxed on the $400 difference. Make sure to research the debt settlement company with the links previously provided and get all agreements in writing.

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Wisconsin Bankruptcy

If you were unable to qualify for a debt consolidation loan, debt management plan, or debt settlement, then consider filing for a Wisconsin bankruptcy. Upsolve has hundreds of articles on bankruptcy and related subjects for every state including Wisconsin. Upsolve has helped hundreds of families in financial situations such as yours file for bankruptcy for free. We are here to help you decide what is your best option to become debt-free. We can even refer you to a bankruptcy attorney in your area.

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About the author

Attorney Alexander Hernandez

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

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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