How to Consolidate Your Debts in West Virginia

Collect the Details About Your Debts

It’s important to gather information about all your creditors. Review your recent credit card statements and credit report to know the total amount of your debt. Since you can obtain a free credit report every year, review your credit history for any mistakes. Errors can be disputed by filing a dispute under the Fair Credit Reporting Act at no cost to you. 

Your debt will fall into two categories: secured and unsecured. Examples of secured debt are car loans, mortgage(s), and home equity loans. 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 as this information will be needed when planning your budget.

Determine Your Monthly Income

Besides the balance on your credit card debt, your income helps determine how much you can afford to pay. Debt consolidation works best with jobs that provide regular income. Irregular income such as from commission-based jobs makes it difficult to calculate your monthly payments and puts you at risk of falling behind on your loan payments. 

Review average paystubs in order to properly calculate your budget. If you include paystubs that have more overtime than normal, your calculations will be wrong. This will result in a seemingly higher disposable income and a monthly payment you can’t afford. Remember, defaulting on your unsecured loan will hurt your credit score. Make sure to multiply your net income times 26 and divide the answer by 12 if you are paid bi-weekly. If you are married or have a domestic partnership, make sure to include that income as well, especially if you are both responsible for the credit card debt.

It is also recommended that child support and 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 protected in a bankruptcy.  

Put Together Your Budget

All your expenses need to be included in your budget. If not, when those bills are due, you will not have enough money to pay for them and may end up getting into more debt because of it. Certain expenses are fixed each month such as your rent/mortgage, car payment, and car insurance. However, since other bills fluctuate monthly like gas, groceries, and utility bills, it’s important to review at least the last 2 to 3 months of bank statements. Don’t forget to include occasional expenses such as car maintenance and annual bills like your real estate taxes and property insurance. Determine the average per month costs of these bills by dividing the full amount by 12. If you find any areas of overspending, reduce those expenses and use the extra money towards your monthly payments. Paying down your debt faster increases your credit score.

Now subtract your expenses from your income. 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. 

If you need help preparing a budget and tracking your spending habits, use apps such as Mint, and Albert. Check your bank’s website as well for online budgeting programs.

Do the Math

To calculate paying off your credit card balance without interest in five years, divide your total amount of credit card debt by 60 (months). Since you calculated your monthly expenses and disposable income, compare that amount to the total amount of your monthly debt. If you have money left over, then a debt consolidation is a good choice. If not, continue reading to learn more about other debt consolidation options such as a debt management plan.

It is also helpful to calculate your credit utilization ratio when applying for a West Virginia debt consolidation loan. The credit utilization ratio is one of the factors used to determine your credit score. The better your credit utilization ratio, preferably below 30 percent, the better position you are in to negotiate with a lender. To figure out your credit utilization ratio, divide the total amount of your debt by your credit limit. 

Review Your West Virginia Debt Consolidation Options

With good credit, a balance transfer to one or more credit cards is a good choice, especially if you are being offered a lower rate of interest. But remember to find out the interest rate once the promotional period expires and don’t assume you will receive more offers before it does.

If you have enough equity in your home, then consider a refinance of your mortgage or a home equity loan. To find out the amount of equity your home has, subtract the full amount of the mortgage balance from the value of your home. By using a home equity loan, you will have a lower monthly payment, but it will cost you more in the long run. Be cautious of an Adjustable Rate Mortgage, known as ARM. As the name suggests, the interest rate adjusts or changes monthly. This may increase your monthly payment making budgeting more difficult. Instead, find out if your lender offers a mortgage modification program which may reduce your monthly payment. This information is usually available on the lender’s website. Also, ask your lender about additional costs such as a property appraisal and loan origination fees.

If you don't qualify for a West Virginia debt consolidation loan, then continue reading to learn more about a debt management plan.

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

While tempting to use your retirement account to pay off your credit card debt, know the consequences. For one, you will be taxed on the amount withdrawn. Two, unless you replace those funds, you will also have less money available come retirement. Retirement accounts are also protected from creditors and are exempt in a bankruptcy case. 

Other debts to exclude from consolidation is your mortgage since mortgages have a lower interest rate than credit cards. Also, because of West Virginia bankruptcy exemptions, it may not be worth it to pay off your mortgage. The same applies to auto loans. Any equity above the exemption amount could result in having to pay that amount back to the trustee. Those funds are then used to pay your creditors. Student loans shouldn’t be included either in a debt consolidation since it can be negotiated separately. If you need to reduce the monthly payments on your student loans, apply for income-based repayment plan.

If you have personal loans from friends and family, exclude those as well since the interest is likely to be much lower, assuming you are being charged interest at all. Remember, the idea of a debt consolidation is not only to become debt-free, but also to avoid spending money unnecessarily. 

Apply for a West Virginia Debt Consolidation Loan

When applying for a West Virginia debt consolidation loan, start with a lender you can trust such as your local bank. Be cautious of lenders that use aggressive sales tactics, phone calls, email, and offers in the mail. Read the fine print and watch out for high-interest rate loans and upfront fees. Websites such as BBB (Better Business Bureau) and the West Virginia Attorney General always have excellent information available on businesses, consumer products, and fraud.

How to Stay Current with Payments After Consolidating Your Debts in West Virginia

Timing is important. If the due date on your debt consolidation isn’t convenient, ask the lender for another date. Having large bills such as your mortgage or rent due at the same time as your loan payments puts you at risk of having little to no money until your next paycheck. Also, to avoid late payments and late fees, have the monthly payment withdrawn automatically from your checking account. Track your spending habits with the apps mentioned above and with any money that is left over, start an emergency fund, open a savings account, or contribute more to your retirement account.