How To Consolidate Your Debts in Ohio

Collect the Details About Your Debts

Obtain your recent credit card statements and credit report to know the total amount of your debt. This is important to know if a debt consolidation is the correct option for you. Having your credit report also helps avoid missing any creditors. By law, you are entitled to a free credit report every year. Use it to check for any mistakes in your credit history.

Categorize your debt into secured and unsecured. Examples of secured debt 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. You will need this information when you plan your budget.

Determine Your Monthly Income

Next, calculate your income to know how much you can afford to pay back. Debt consolidation works best with consistent income. Debt consolidation may not be a good choice with commission-based jobs as it makes it difficult to determine how much you can afford each month. The same applies to unreliable sources of money such as child support and alimony.

Review paystubs that are most consistent with how much you typically earn. For example, if you included a paystub where you worked more overtime than usual, this would lead to a higher monthly payment plan. This places you at risk of falling behind with your payments. 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 in one year.

If your income includes Social Security, know that it is exempt in a bankruptcy case. Therefore, a debt consolidation may not be your best option. If your spouse or domestic partner is a co-signor on the debt, include their income as well.

Put Together Your Budget

Include all your bills in your budget. Separate expenses into those which are the same amount each month such as your rent/mortgage, car payment, and car insurance. Review at least the last 2 to 3 months of bank statements to find bills that fluctuate monthly like gas, groceries, and utility bills. Include occasional expenses such as car maintenance. If you own a home, you may pay your real estate taxes and insurance once a year. Average the per month costs of these bills by dividing the full amount by 12. If you don’t include these expenses, when they are due, you will not have enough money to pay for it and may end up getting into more debt because of it. Look for areas of overspending. Use the extra money to pay more than the minimum payments. The faster you pay down your debt, the faster your credit score increases.

After calculating your expenses, subtract that amount from your income to know how much money you have available to pay your debts. If there is too much money left over, review your income and expenses again for any mistakes. 

If you don’t have disposable income available or even a negative balance, then a debt consolidation plan isn’t a good option since you can’t afford to pay back your debts. Take advantage of online budgeting tools and apps such as Mint, Albert, spreadsheets like Excel, or your bank’s online budgeting program.

Do the Math

Now that you calculated your income and expenses, including the balance on your debt, it’s time to calculate your monthly payment plan. Get the total amount of your debt and divide that number by 60 to calculate a monthly payment plan of five years without interest. Depending on the amount of your disposable income and monthly debt total, then consider a debt consolidation or debt management plan.

Also, figure out your credit utilization ratio which is one of the ways your credit score is determined. A good credit utilization ratio is below 30% and could give you a stronger negotiating position with a lender. To figure out your credit utilization ratio, divide the total amount of debt by your credit limit. 

Review Your Ohio Debt Consolidation Options

Review the different loan options that include a credit card balance transfer, personal loans, unsecured debt consolidation loans, and home equity loans. 

With good credit, consider a balance transfer to other credit cards, but remember to read the fine print for any transfer fees or origination fee if it is with your home mortgage. Also, focus on the interest rate after the promotional period ends to avoid higher debt payments.

If refinancing your mortgage, while you may have a lower monthly payment, long-term you will be paying more. If your bank offered you a home equity loan with an Adjustable Rate Mortgage (ARM), note that the interest rate changes monthly. This could increase your monthly payment, making budgeting more difficult. If you need a lower monthly payment, ask the lender about mortgage modification programs that may lower your interest rate. Apply for a home equity loan with a lender you can trust such as your local bank. 

If you don't qualify for an Ohio debt consolidation loan, continue reading to learn about a debt management plan.

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

Withdrawing money from your retirement account will result in paying more in taxes. The closer you are to retirement, the more of a challenge this presents if less money is available. Since retirement accounts are protected from creditors and exempt in bankruptcy, a debt consolidation may not be the best choice.

In Ohio, paying off your car loan may also be a mistake. Bankruptcy exemptions include $4,000 per vehicle for a single filer. If you pay off your car with an Ohio debt consolidation loan, any equity over $4,000, the bankruptcy trustee could have you pay back. Those funds are then used by the trustee to pay back your creditors. 

Since student loans have flexible payment plans including income-based payment plans, exclude them from a debt consolidation loan.

Apply for an Ohio Debt Consolidation Loan

When applying for an Ohio debt consolidation loan, avoid lenders with aggressive sales tactics, mail offers from unknown lenders and lenders that require money upfront. If it sounds too good to be true, it probably is. Protect yourself and research with organizations you can trust like the BBB (Better Business Bureau) and the Ohio State Attorney General.

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

Timing is everything. Avoid your due date during the same pay period as your mortgage or rent so you aren’t left without money until your next paycheck. Have your monthly payments withdrawn from your bank account to avoid spending money unnecessarily on late payments and late fees. Track your spending habits and start an emergency fund. Use some of the financial budgeting apps and programs mentioned above to afford more than the minimum payment.