How to Consolidate Your Debts in Oregon

Collect the Details About Your Debts

Collect your recent credit card statements and credit report to know the total amount of your debt. Knowing the balance of your debt is important in order to determine your budget and to find out whether a debt consolidation is the right option for you. It’s also a good way to double-check your creditors to make sure all your debt is included. Since you are entitled by law to a free credit report every year, get into the habit of checking your credit history annually to make sure there are no mistakes that could affect your credit score. If there are mistakes listed in your credit report, you can file a complaint under the Fair Credit Reporting Act. Next, categorize your 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. You will need this information when you plan your budget.

Determine Your Monthly Income

Your income and credit card balances are needed in order to figure out how much you can afford to pay back. Debt consolidation works best with jobs that provide regular income. Income from commission-based jobs makes it difficult to calculate your monthly payments. As a result, if you fall behind on your loan payments, your credit score will be negatively impacted. Review an average pay stub in order to properly calculate your budget. If you include pay stubs that have more overtime than normal or PTO (paid-time-off), you will end up with a monthly payment plan you can’t afford, defaulting on your unsecured loan. If you are paid bi-weekly, multiply your net income times 26 and divide the answer by 12 since there are 26 pay periods in one year. Income from a spouse or domestic partner should also be included, especially if you are both responsible for the credit card debt. It is also recommended that child support or alimony payments aren’t included since those funds aren’t always reliable. If you receive Social Security income, a debt consolidation may not be the right option for you since your income is exempt in a bankruptcy.  

Put Together Your Budget

Use your bank statements to help calculate your expenses. Certain expenses are the same amount each month such as your rent/mortgage, car payment, and car insurance. By reviewing your bank statements, you can also see which bills fluctuate monthly, occur every few months such as car maintenance, and bills that are paid annually such as real estate taxes and property insurance. Calculate the monthly average of these expenses by dividing the full amount by 12. As you review your bank statements, search for areas of overspending. If you can reduce those expenses, making more than the minimum payment will help pay off your debt faster.

After calculating your expenses, subtract that amount from your income. If you have a lot of money left over, review your income and expenses again to find any mistakes. If you don’t have disposable income available, then a debt consolidation plan will not work since you can’t afford to pay back even a portion of your debts. If you need help with budgeting, try online tools and apps such as Mint, Albert, or spreadsheets. Your bank may also offer online budgeting programs.

Do the Math

Next, calculate the total amount of credit card debt and divided that by 60 (months). This will tell you how much your payment would have to be at the very minimum to pay off your debt in 5 years (it’ll likely be higher, due to interest). Compare the result to your disposable income. If you have enough money left over, consider a debt consolidation. It also helps to calculate your credit utilization score if you are applying for an Oregon debt consolidation loan. A good credit utilization ratio is below 30 percent and can be calculated by dividing the total amount of your debt by your credit limit. Credit scores are based in part on credit utilization ratios and a good score will help you when applying for a debt consolidation loan.

Review Your Oregon Debt Consolidation Options

After calculating your income, expenses, and the total amount of your debt, review the different types of loans available to you. With good credit, a balance transfer to one or more credit cards is a good choice if you are paying a lower interest rate. If you have enough equity in your home, then refinancing your mortgage or a home equity loan are both good options since you will have a lower monthly payment, but this will cost you more in the long run. If the bank offers an Adjustable Rate Mortgage, known as ARM, know that since the interest rate changes monthly, so does the amount of your monthly payment. This will make budgeting more difficult. Instead, ask your lender about mortgage modification programs that may reduce your monthly payments. Ask your lender about additional costs such as loan origination fees. If you don’t qualify for an Oregon 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

Using your retirement account to pay off your debt could be risky. For one, withdrawing funds before retirement age will result in tax consequences. It also means there will be less money available for retirement. Also, retirement accounts are protected from creditors in a bankruptcy case, unless transferred to personal accounts such as a checking account. 

Because student loans can be negotiated separately, don’t include them in a debt consolidation. Instead, if you need to reduce your monthly payments, apply for an income-based payment plan.

Apply for an Oregon Debt Consolidation Loan

When applying for an Oregon debt consolidation loan, start with a trustworthy lender such as your local bank. Lenders that use aggressive sales tactics, phone calls, email, and offers in the mail, should be researched. Read the fine print and watch out for high-interest rate loans and upfront fees. When in doubt, research with reputable organizations such as the BBB (Better Business Bureau) and the Oregon State Attorney General. 

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

As you take steps towards being debt-free, avoid certain pitfalls that will cost you money unnecessarily. Avoid setting the due date on your debt consolidation loan during the same pay period as your larger expenses such as your mortgage or rent. If not, you may leave yourself with little to no money until your next paycheck. Have your monthly payments withdrawn from your bank account to guarantee your payments are on time. If not, you risk being charged for late-payments and late fees. Use the budgeting apps previously mentioned to track your spending habits. As you pay down your debt and save money, start an emergency fund or open a savings account. Pay more than the minimum payment to improve your credit score faster.