How to Consolidate Your Debts in Louisiana

Collect the Details About Your Debts

It may seem obvious, but the first step in determining whether debt consolidation will work for you is determining the total amount of your debt and identifying all of your creditors. The ultimate goal of this exercise is to create a list that shows:

• The type of debt you owe (student loans, credit card debt, other unsecured or secured loans, etc.)

• the interest rate being charged

• Your monthly payment

• Your balance

• Your account status (whether you're up-to-date on the bill

The easiest way to find all of this information is to pull together your bank statements, invoices, and credit card bills for the last few months. This information should be on the notices and bills you receive from your creditors. If it’s not, you should call their billing departments to get the most current information. Now, look at your list and highlight those debts that you would want to consolidate through a loan or payment plan.

The second step in this exercise is double-checking your work by requesting a copy of your credit report. You can obtain your credit report for free once a year from the three credit reporting bureaus (Equifax, Experian, and TransUnion). This document will show you how your creditors are reporting your debt and it will contain information about your credit history.

Look it over to make sure that you haven’t mistakenly forgotten about any outstanding debts. And, while you’re at it, you may as well request your credit score, which is available for a small fee from the credit bureaus and possibly for free from your credit card company. 

Determine Your Monthly Income

After you’ve determined the debt that you would like to consolidate, you need to calculate your take-home monthly income. This calculation will help you analyze your budget and decide whether debt consolidation makes sense.   

In this step, you will again need to collect some financial documents. Find and review your last two or three paycheck stubs. Is the income that you earned representative of your normal paycheck? In other words, did you earn more or less than you usually do? Why? If you worked extra hours or received a bonus or commission, use a paycheck that is more typical of your usual earnings. Because you will use your monthly income to set your budget, you only want to include regular income so that you don’t sabotage yourself by overestimating how much money you can spend each month. 

Using that pay stub, find the line item called “Net Pay.” This is the amount that you received after taxes and payroll deductions, and this is the amount that you will use to calculate your monthly income. How frequently are you paid? Use the following table to find your net annual income:

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

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

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

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

Next, divide your net annual income by 12 to find your net monthly income. Again, if you sometimes earn a bonus or commission or receive child support/alimony, your calculated monthly income may be less than your actual monthly income. This is fine. It’s better to be conservative in your estimates and have more money available than you thought than to overestimate and be short. 

Put Together Your Budget

At this point, you know how much you owe and how much you make, but do you really know how much you are spending each month? Creating a budget will help you understand where your money is going and ensure that it’s going to where it needs to be.

First things first, go back to your spreadsheet and create a new column for your monthly bills. Identify those bills that don’t fluctuate very much each month (like your rent, mortgage, cell phone, etc.) and input those fixed costs. Then, take a look at your last few months of credit card and bank statements for input those expenses that are a bit more variable (utilities, groceries, gas, entertainment). You may even want to categorize your expenses so that you can get an estimate of how much you really are spending each month on things like dining out or ride-sharing services. See how these costs compare with your earnings - do you see any areas for cost savings? 

In addition to your normal monthly expenses, you also need to account for irregular expenses that you pay for once a year or every few months (think: car registration and inspections, oil changes, medical exams, holiday travel, etc.). Add-up those costs and divide by 12 to see how much additional money you need to allocate in your monthly budget to cover those costs over the course of the year. Finally, your budget should also include money for emergencies. Plan to set aside an additional 10% to cover unanticipated costs. The key is to be realistic: if you make a budget that you can’t stick to, you’ll just end up frustrated.   

Do the Math

You’re almost there: the final step in determining whether a Louisiana debt consolidation loan is a good loan option for you is determining what income, if any, you have available to make loan payments. Go back to your debt spreadsheet and total all of the debt that you would want to consolidate. This sum represents your loan amount. In order to figure out your monthly loan payments, divide your “loan amount” by 60 (i.e., 12 monthly payments over five years). Since we haven’t factored in any interest or origination fees, this calculation is an approximate number, but it gives you something to work with. Now, deduct your calculated loan payment from your monthly income. How much do you have left-over after you make those payments? Does it cover the budget that you designed? If not, can you eliminate or reduce any other spending? If you’re able to balance your budget and your monthly loan payments, then debt consolidation may be a good option for you. 

Review Your Louisiana Debt Consolidation Options

Depending upon the type of debt that you owe and your credit score, you may be eligible for a number of different debt consolidation options.

• Credit Card Balance Transfers: If you are carrying a large credit card balance with a high-interest rate, then moving this debt to a balance transfer card is a great way to lower your minimum payment and overall debt. These offers usually have a very low (close to 0%) promotional interest rate that may allow you to quickly chip-away at your credit card debt. Your credit score and line of credit will determine how much you can balance transfer. Beware that you may have to pay a transfer fee, and the interest rate may increase dramatically after the promotional rate expires. 

• Personal Loans: If you have good credit, you may be able to get a new loan from a bank, credit union, or online lender. You can then use this money to pay off different types of debt, including car loans, credit card debt, medical bills, student loans, or other personal loans. These types of personal loans are generally easy to apply for and don’t require a ton of paperwork, but you may be charged an origination fee, application fee, or other charges.  

• Home Equity Loans or Refinancing: If you own a home that has equity (i.e., its value is more than you owe on it), then you may be able to borrow against this equity through either a home equity loan or a refinance of your mortgage. These types of loans generally offer the best repayment terms (lower interest rates and longer loan terms), but they also are administratively expensive (you’ll have to pay for an appraisal, origination fee, legal fees, and recording fees) and you run the risk of losing your home if you stop repaying your loan. 

• Debt Management Plan: A debt management plan (DMP) is a tool offered by credit counseling agencies that allows you to repay unsecured debt over a period of three to five years. With a DMP, you submit a single monthly payment to your credit counselor, and that money is then distributed to your creditors based upon a repayment schedule agreed-to by your creditors. Your access to credit will generally be limited while you are enrolled in a debt management plan. 

Apply for a Louisiana Debt Consolidation Loan

If you’re interested in applying for a Louisiana debt consolidation loan, you can get additional information and other debt relief resources from an accredited Louisiana credit counseling agency. A legitimate credit counseling agency should also be able to provide you with information about debt management plans if it turns out that consolidation through a new loan isn’t realistic due to bad credit. As with any financial interaction, trust your gut. Make sure that you understand the terms of any loan and refer to your debt spreadsheet to ensure that the loan will actually result in a lower monthly payment. If a deal seems too good to be true, or the lender is aggressive or asking for money up-front, don’t feel badly about walking right out the door. If you have any doubts about a financial partner, you can check with the Louisiana Attorney General’s office or the Better Business Bureau for any complaints or warnings about the company. 

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

Once you’ve consolidated your debt, your success will largely hinge on your ability to make appropriate and timely payments. Below are a few strategies to help you avoid obstacles to becoming debt-free.    

• Automatic Loan Payments: Set it and forget it! Schedule your debt payments for a day that you know your bank account should have sufficient funds and then set-up automatic bill pay to eliminate the possibility of a late payment.

• Monitor Your Spending: Debt consolidation works best when you have your spending habits under control. Use technology to help you! You can use apps like Mint or Albert to help you keep track of your budget and alert you when you’re reaching your limit. 

• Consider Using Cash: If you consolidated credit card debt, you probably freed up some credit that’s now available to you - don’t be tempted to use your cards! You don’t want to be making payments on your old debt and accruing new high-interest debt. Rather than a credit card, try taking out a certain amount in cash each week and only using that amount for your discretionary spending.

• Plan for the Unexpected: It sounds silly to say, but it’s just a fact of life that we can’t plan for all eventualities. You will likely have some emergency occur, and if you’ve set aside money each month (say 10%) in a dedicated emergency fund, then you’ll be better prepared to handle a truly unexpected expense. Knowing that you have money set aside will also reduce the stress of an otherwise stressful situation. 

• Reward Yourself: Paying off your debt is hard, but it shouldn’t be drudgery. Try to make a game of it and set specific targets or milestones for yourself. When you reach those milestones, reward yourself with a little indulgence (go out for a nice meal, get a massage, buy new running shoes, etc.) - whatever brings you some joy (in moderation).