What many people don’t understand is that debt consolidation isn’t anything you can’t do for yourself. Yes, there are some benefits to working with a company that has experience in this area, but when it comes down to paying them, it just doesn’t end up being worth the cost. Understanding how debt consolidation works and how you can do the same thing can help you cut down your debt to a much more manageable level.
What a Debt Consolidator Will Do for You
When you meet with a counselor, she will gather all of your bills and income statements. If your bills tally much more than what you make each month, she will start to prioritize bills. The most important ones are those that make it possible for you to live such as the mortgage/rent, utilities, and car payment.
Once the counselor deducts the most important bills, she will determine how much money you have left over for bills. This will be the goal amount to get your bills down to so that you’re able to start paying them off.
The next step for a debt consolidator is to start calling creditors to see how much they can settle your debt for with them. She will call the company, let the representative know you want to pay off debt and have started working with a debt consolidator. This tells the company that you are serious about your financial management plans.
The next part is to let the company know of your desire to cancel your credit through them and you’d like a settlement amount. This is when the negotiations begin because many creditors will deduct late fees and cover charges. However, not all will do it for everyone. This is where a debt consolidator can come in handy because she knows most of the companies and they know her, so they are more willing to work on getting the debt as low as possible. Some debt consolidators can reduce debt to as much as 40 percent less, but others may only be able to get it down to 10 percent.
After all, settlements are determined, the remaining debt is paid for with a debt consolidation loan. From this point on, you’ll make payments to the debt consolidation loan.
How to Do It Yourself
To consolidate your debt yourself, understanding how debt consolidation works are essential. Here is a step-by-step guide on how to do it just like a debt consolidator.
- Separate the bills you need to pay each month to live. For example, mortgage/rent, utilities, and car payment.
- Subtract the total of these bills from your income.
- Call the creditors of all other bills to close the accounts and negotiate settlement amounts. Negotiate as much as possible to remove fees and charges.
- . If possible, secure a loan from a lender that you can use to pay off all other bills. Alternatively, take the remaining amount of your income after paying living expenses to determine how much you can pay towards debts.
- Divide the amount you can pay towards debt between bills.
- Create a budget that ensures you pay on these bills as needed to pay them off.
- Lower your rate of interest and monthly expenses by finding some alternative funds. Try to borrow money at low interest rates. Use the leftover money to repay the loans that have a high interest rate. By doing so, you can bring down the amount of your total monthly payments considerably. Home equity loans, Cash-out refinancing are some of the options that you can consider.
- Always prefer Life Insurance loan over bankruptcy. The cash amount you have borrowed can be used for debt consolidation. If the amount of loan taken from the Life Insurance is less than the sum assured of the policy, you won’t have to repay the loan. Yet, repaying the loan is a good choice, otherwise, it will be deducted from the final amount you would have received.
In a Nutshell
You can reach your goal efficiently and quickly by following strictly the above-mentioned tips. If you’re not confident, then seek the help of debt consolidators. They with their years of experience in this field will convince the lenders to minimize your interest rates. With their help, you will also come to know numerous ways by which you can ease the stress of repayments.
Know the risks before you start to consolidate the debt yourself. Create a plan and stick to it. A debt consolidator can’t make you pay back a debt consolidation loan, but they can help create a budget. You can do the same thing, as long as you have the control needed to do it.