How To Consolidate Your Debts in Wyoming

Collect the Details About Your Debts

Start collecting information on your debts which includes your credit card balances, interest rates, and the amount of your monthly payments. Knowing the balance on your credit cards will help determine your monthly payments. You should also obtain your credit report to make sure all creditors are included. Review your credit history as well for any mistakes. By law, you are entitled to a free credit report every 12 months.

Next, categorize your debts into secured versus unsecured debt. Examples of secured debt include your mortgage and auto loan(s). Unsecured debt includes your credit cards, personal loans, medical bills, and student loans.

Determine Your Monthly Income

Besides the balance on your credit cards, your income is needed to figure out how much you can afford to pay back. Irregular income such as commission-based jobs will make it more difficult to calculate how much you can afford. As a result, you may default on your loan payments which will hurt your credit score.

When reviewing your most recent paystubs, make sure it is a typical pay stub. For example, if you received more overtime than normal or cashed out your PTO (paid-time-off), then when you calculate your monthly income, it will be higher than normal. This will result in a payment plan you can’t afford. If you are paid bi-weekly, multiply your bi-weekly income times 26 and divide the answer by 12. If you multiply your bi-weekly times two, you are skipping two pay periods. If you receive other forms of income such as Social Security, it’s important to know that income is exempt in a bankruptcy case. Therefore, it may be to your advantage to file for bankruptcy. Child support and alimony should not be included in your calculations since it isn’t always paid timely, sometimes not at all. You want to make sure you’re not setting yourself up for failure by inflating your monthly income. Make adjustments in your expenses and income if you are including your spouse or domestic partner. 

Put Together Your Budget

How much you can afford to pay your creditors depends on your budget. Certain expenses are fixed, such as rent/mortgage, auto loans, and car insurance, while other expenses fluctuate monthly. Review at least the last 2-3 months of your bank statements to see how much you spend on average. Include expenses that occur every few months, such as car maintenance. Don’t forget annual bills like property taxes and insurance. If you don’t budget for it, when that bill comes due, you will not have enough money to pay for it. Calculate the monthly average of yearly expenses by dividing the full amount by 12. Subtract your expenses from your income. That is how much money you have available to pay creditors. Is there a lot of money left over? Look for expenses that weren’t included. If you are facing the opposite situation and have no disposable income or even a negative balance, debt consolidation is not a good option because you can’t afford the monthly payments. To help with your budget and tracking expenses, take advantage of apps and programs offered by your bank or other tools such as  Mint, Albert, and spreadsheets.

Do the Math 

Divide your total amount of credit card debt by 60 (months) to calculate paying off your credit card balance without interest in five years. If need be, divide your credit card debt by 120 (months) or 10 years. This will give you an idea of how much your monthly payment after a consolidation would have to be in a best case scenario. Compare your monthly debt total to your disposable income. If you have enough money left over, then a debt consolidation is a good choice. When considering a Wyoming debt consolidation loan, it also makes sense to figure out your credit utilization ratio as this may be helpful when negotiating with creditors. Credit utilization ratios are used to calculate your credit score. For example, the closer your debt amount is to your credit limit, the more it hurts your credit score. To figure out your credit utilization ratio, get the total amount of your debt and divide it by your credit limit. A good number is below 30 percent. 

Review Your Wyoming Debt Consolidation Options

If you have good credit, consider a credit card balance transfer or an unsecured debt consolidation loan. Remember to find out the interest rate on a credit card balance transfer when the promotional period ends. Don’t risk defaulting on your monthly payments by assuming you will get another offer before the promotional period expires. 

If you are going to refinance your mortgage or get a home equity loan, besides the added cost of an origination fee, your lender may offer an Adjustable Rate Mortgage. Known as ARM, this means the interest rate changes monthly. This could result in higher monthly payments. If you can’t afford the payments, you risk defaulting on your loan and losing your house in a foreclosure. You are also reducing the amount of equity in your home. Equity is the value of your house minus what you owe on the mortgage. If you can’t get a consolidation loan because of bad credit or you don’t have enough equity in your home, then consider a debt management plan.

Why Using Your Retirement Account to Consolidate and Pay off Your Debts is a Terrible Idea

Even though you have enough money in your retirement account to pay off your credit card debt, withdrawing money before retirement age results in tax consequences. You will also have less money available come retirement. Retirement accounts are also protected from creditors, even in a bankruptcy case. However, once retirement funds are transferred to personal accounts such as a checking account, that protection is lost.

Other debts to exclude from consolidation is your mortgage since mortgages have a lower interest rate than credit cards. Also, Wyoming bankruptcy exemptions only protect a certain amount of equity in your property. In other words, paying off your mortgage may not be in your best interests if you file for bankruptcy. Instead, if you need to lower your mortgage payments, ask your lender about mortgage modification programs. 

Just like your home, think twice before paying off your car loan. Bankruptcy exemptions protect $5,000 of equity in your car. Anything above that amount, the bankruptcy trustee could have you pay back and use those funds to pay your creditors. Since student loans can be negotiated separately, exclude them from a debt consolidation. Consider an income-based repayment plan that could reduce your monthly student loan payment instead. 

Exclude personal loans owed to friends and family since you are probably paying them back with little to no interest. By paying them off with a debt consolidation loan, you will likely be paying a higher interest rate which will cost you more in the long run.

Apply for a Wyoming 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 websites such as the BBB (Better Business Bureau) and the Wyoming State Attorney General. Be careful of offers from unknown lenders via email, mail, phone calls or through other aggressive sales tactics.  Look out for lenders wanting money up front and that offer high-interest rates. Try your own bank for an unsecured loan first. If a debt consolidation loan with favorable terms is not available to you due to your credit score, consider a debt management plan.

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

As you take steps towards being debt-free, don’t spend money unnecessarily. Pick a due date that is not during the same pay period as your larger expenses such as your mortgage or rent. Otherwise, you risk having little to no money until your next paycheck. Avoid late payments and late fees by having the payments withdrawn automatically from your bank account. Set goals such as paying off your debt faster by making more than the minimum payment which also improves your credit score. Other goals could include contributing more money to your retirement or savings account. Be proud and reward yourself for accomplishing your goals.