How to Consolidate Your Debts in Wisconsin

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.