How to Consolidate Your Debts in Hawaii

Collect the Details About Your Debts

You probably have a pretty good idea of how much debt you owe, but do you know the nitty-gritty details? In order to determine whether debt consolidation will help you out of your circumstances, you will want to collect details about your debt and your creditors. Create a spreadsheet and list the names of all of your creditors. Now, go mine your mail for past invoices and bills from those creditors and insert into the spreadsheet the following information next to each creditor: (1) the type of debt you owe (student loans, credit card debt, other unsecured or secured loans, etc.), (2) the interest rate being charged, (3) your monthly payment, (4) your balance, and (5) whether you are up-to-date on the bill. If this information isn’t available from a creditor’s statement, call the billing department and get the most up-to-date information available. 

In order to make sure that you haven’t overlooked any debt, you should also request a copy of your credit report. This document is available for free from the three credit reporting bureaus (Equifax, Experian, and TransUnion), and it will show you what your creditors have reported about your credit history. You will want to compare your reported credit history to the spreadsheet that you created and make sure that nothing fell through the cracks. And, for good measure, it’s also a good idea to purchase your credit score from either the credit reporting bureaus or your credit card company. 

Determine Your Monthly Income

In this step, you will need to collect your two most recent paycheck stubs. Review these paystubs and determine whether the income you received is typical of your usual paycheck. Pay particular attention to things like overtime, bonuses, commissions, missed hours, or unusually large deductions. If these paystubs are not representative of your normal earnings, then keep looking to find one that is a better example. You will use this calculation in order to set your budget, so you want to make sure that you don’t overestimate the amount available to you each month. To that end, don’t include any earnings that are irregular or unusual (this could include child support, alimony, or other payments that are due to you but you have difficulty collecting).

On your paystub, there is a line item called “Net Pay”, which represents the amount that you received after your company took out taxes and payroll deductions. Next, use the following pay frequency chart to calculate your net annual income.

• If you’re paid weekly, multiply your “Net Pay” by 52;

• If you’re paid bi-weekly (every other week), multiply your “Net Pay” by 26;

• If you’re paid bi-monthly (twice a month), multiply your “Net Pay” by 24; or 

• If you’re paid monthly, multiply your “Net Pay” by 12. 

Now, divide your net annual income by 12 to get your net monthly income. This calculation will help you analyze your budget and decide whether debt consolidation makes sense.   

Put Together Your Budget

After you’ve calculated your debt and net monthly income, the next step is understanding your spending habits and making a budget to make sure that all of your bases are covered.

For this exercise, you’ll want to add a new column to your spreadsheet and start inputting your monthly bills. First, list your expenses that are relatively stable or “fixed” each month: this likely includes things like your rent or mortgage, commuting costs, data plans, etc. Do you have any room to reduce those costs? If so, in the column next to that expense, insert what you realistically think you can reduce that cost to each month. 

Next, review a few months’ worth of credit card and bank statements and identify your more variable costs, like groceries, utilities, gas, and entertainment. Add those costs to the same column under your fixed costs. Then repeat the prior exercise: are there any variable costs that you can reduce or eliminate? If so, insert your budgeted amount in the column next to it. 

You will also need to budget for expenses that only arise once or a few times a year. For example, costs for car registration and oil changes, medical co-pays, gifts, and professional dues should all be included. Tally-up how much you spend on these expenses over the year, and then divide by 12 to determine how much you need to set aside each month to cover these costs. Finally, it’s also important to include a line item for an emergency fund so that when (and if) an expense that you didn’t anticipate occurs, you have a fund set aside to cover that

Do the Math

It’s time to pull all the details together to see whether you have enough monthly income left-over each month to stick to your budget and make debt consolidation repayments. Add all of the debt that you identified in the first exercise to find the loan amount you would need. Most Hawaii debt consolidation loans have a loan term of five years, which means that you need to divide your total amount by 60 (i.e., 12 monthly payments over five years) to calculate your monthly loan payment (without interest). Subtract your monthly loan payment from your monthly income and compare what remains with your budget. Do you have enough left-over to cover your budget? If not, are there other reductions to your variable spending that you can make? Debt consolidation works if you have enough money left-over to cover both your loan payments and your budget.  

Review Your Hawaii Debt Consolidation Options

If you completed the exercise, and you determined that your income can cover your estimated debt payments, then you may be eligible for a number of different debt consolidation options.

• Credit Card Balance Transfers: If you have a good credit score, you may be able to transfer your credit card balance from one company to a new line of credit with a low-interest rate. Balance transfer cards sometimes offer rates as low as 0%, so they can be a great way to dramatically lower your minimum payments and overall debt. Pay attention to the fine print, though, because some offers have a short promotional period (after which time the interest rate skyrockets) and may charge a transfer fee.    

• Personal Loans: Another option for consumers with good credit is applying for an unsecured loan through your bank, credit union, or online lender. You can apply the money that you receive from your lender to repay all types of existing debt. Beware with this type of personal loan: you may be charged an origination fee or application fee, and you really only want to get a new loan if the terms offered are better than what you are currently being charged by your creditors. You can use the spreadsheet that you created earlier to compare repayment terms.

• Home Equity Loans or Refinancing: If you own a home, you probably know that you can borrow against the equity of the property through either a home equity loan or a refinance of your mortgage and use that money to pay off other creditors. While these types of loans usually offer the lowest interest rates and longest loan terms, they are also full of administrative costs (like charges for an appraisal, origination fee, legal fees, recording fees, etc.). These loans also put your home at risk if you can’t make timely payments. 

• Debt Management Plan: With a debt management plan, your credit counseling agency acts as an intermediary between you and your creditors. The agency will negotiate a payment plan with your creditors, which usually gives you about three to five years to repay unsecured debt. Under the plan, you make a single monthly payment to your credit counselor, and that money is then distributed to your creditors based upon the payment plan. While you are enrolled in a debt management plan, you will likely not be able to access new credit.  

Apply for a Hawaii Debt Consolidation Loan

If you’re interested in applying for a Hawaii debt consolidation loan, it’s a good idea to do a little research before you provide any financial information to a potential lender. To ensure that the company is legitimate, you can check with the Better Business Bureau for any complaints or speak to a counselor from an accredited Hawaii credit counseling agency. If it turns out that a debt consolidation loan isn’t in the cards for you, your credit counseling agency can also provide you with additional information about debt management plans and other debt relief resources. Also, when you speak with potential lenders, make sure that you understand the terms of any loan and that the terms being offered are better than what you are currently paying (your debt spreadsheet should come in handy for this). The goal is to negotiate down your high-interest debt to something manageable. Of course, if something seems too good to be true, it probably is, and you should consider immediately walking away from any lender who is aggressive, won’t answer questions directly, or seeks money up-front.

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

After you’ve consolidated your debt, the hard part is sticking with your plan. We’ve outlined some strategies below to help you make sure that your debt consolidation is successful.

• Automatic Loan Payments: Dummy-proof your loan payments by setting up automatic bill pay through your bank or lender. This will help you avoid making late payments and incurring unnecessary costs. Most lenders also let you choose your bill due date, so schedule it for a day that makes sense for your financial situation. For example, you might want to stagger it for a few days after your first monthly paycheck or for two weeks after your mortgage is due to space-out large deductions. 

• Monitor Your Spending: You set-up a budget, but you need to monitor it and keep to it. There are several useful apps (try Mint or Albert) that will help you keep track of your spending and notify you when you’re reaching your budget’s limits. You should also keep asking yourself whether you can reduce certain expenditures even further: any extra money that you can save and throw toward paying down your debt will help you save even more money in the long run. 

• Cash is King: If you freed up your credit line after you consolidated your credit card debt, try to avoid using those high-interest cards by relying on cash. Try withdrawing a weekly allowance for yourself and only using that cash for your discretionary spending. 

• Plan for an Emergency: Try as you might, there will be certain expenses that you just didn’t plan on. Maybe your dog gets sick or your car breaks-down, but Murphy’s Law says that something will occur that you didn’t include in your budget. So, make sure that your budget has a line item for emergency issues and set aside 10% each month into a separate account for those unanticipated costs. 

• Reward Yourself: It can be frustrating to constantly monitor your budget. And, even though you know your hard work will pay off in the end, sometimes it’s hard to keep it all in perspective. Help keep positive thoughts by setting some goals or milestones for yourself and rewarding yourself when you reach those goals. Set aside a small amount each month for this slush fund and indulge yourself (in moderation) when you hit those milestones.