Have a strategy before consolidating your debts.
Do it Yourself Debt Consolidation
Just because you are having debt problems does not mean that you necessarily have to see a credit counselor. There is no law outside of a bankruptcy filing that requires you to do so. And yet, in my many years of legal practice and civil advocacy, I have been amazed at how many people were thwarted or frustrated in their attempts at trying to help themselves.Within debt consolidation there is an ideal way to represent yourself. On the other hand, there also are circumstances in which you should seek help. Let us set the record straight:
- Legitimate do-it-yourself offers do not turn into attempts to sell an expert’s books or programs.
- Legitimate do-it-yourself debt projects do not involve giving private information to a stranger.
While it may seem obvious, people sometimes fail to realize that do-it-yourself debt management saves you money only if your debt actually is managed. In other words, one can take many worthwhile ‘self-help’ steps when it comes to debt consolidation, but real action must follow all of your planning. There are many different strategies for approaching debt consolidation, and some will work better for certain types of debt than for others. The following chart should be a helpful guide:
Step One |
Gather ALL of your debt records, noting amounts, due dates, and interest rates |
Write own your “must pay” expenses |
Write down less important but pressing debts |
Obtain your credit report |
Step Two |
Negotiation with creditors: contact your creditors |
Explain you are exploring your best options |
Inquire whether the creditor is able to decrease the amount desired as collectable |
Go To Step 3 |
Step Three |
Gather ALL of your expected annual income records |
Based on debt/ expenses & negotiation with creditors, develop monthly budget |
Determine which items would be best handled by long-term payments or items for consolidation |
Go To Step 4 |
Step Four |
PLAN on your ACT* for payment based on a monthly budget |
Monitor the plan’s success |
Do not divert any savings into new expenses |
Go To Step 5 |
Step Five |
Long-term Equity and Savings Plan |
Consider accelerating payments as some budget items are paid off |
As equity position improves, repeat Step 2 |
Determine alternative debt strategies for difficult items (e.g.,debt management plan/bankruptcy, or home equity options) |
You probably can make a pretty accurate guess about you and your family’s financial strengths and weaknesses. Many people, for example, have difficulty forming realistic payment and disbursal plans and could benefit from professional assistance in this area. Even though there are many steps you can take yourself, you should seek help with those areas in which you lack confidence, information, skills or time.
Before forsaking the help of a professional, compare the nominal cost of spending some money (perhaps $20 per month) to a consolidation or counseling company versus your own ability to develop, manage and apply your debt management skills. Most people decide that their best option is somewhere in the middle. Consider signing up for credit counseling only until you get the ball rolling – and do not wait until you are in over your head. With a little bit of help, you can master debt management.
Solutions for Debtors
Every day is full of temptation, with those 0 percent financing offers, the latest phone/television/camera commercials, and those shoes that you can't live without. Unless your surname is Trump or Hilton, you probably can't afford the latest and greatest item without increasing your credit card balances to unmanageable levels. Sure you have to eat and put gas in the car-but it's critical to analyze your outflows. If you're spending two new dollars for every dollar of debt that you eliminate, you'll never achieve your goal of getting out of debt. Here are some solutions to help get your financial situation under control.Home equity loans equal favorable debt
If you own your home, you might be able to use it to consolidate your debts and reduce your interest rate by taking out a home equity loan to pay off your high interest credit cards. You'll have a lower interest rate, and simplify your life by paying only one bill each month. Talk to a tax professional, since the interest paid on a home equity loan may be tax deductible.Don't toss the balance transfer offer
Another solution is to use a 0 percent balance transfer offer and move your high rate balances to this new credit card. Before you do anything, though, get out the magnifying glass and read the fine print. Most of them have a transaction fee that's a percentage of the amount transferred. Learn what you'll be charged, as it can be costly. Also, understand what will happen if you use the credit card for new charges. Any payments that you make may go toward the 0 percent transfer, not the new charge.Home is where the equity is
Refinancing is another option if you've built up some equity in your home, or it has appreciated in value. You may be able to refinance a larger amount and use the extra cash to pay off the high rate credit cards. Depending on what the current mortgage rates are, your new monthly mortgage payment may be higher or lower. But, the critical thing is that you'll be paying a lower rate than the credit card companies were charging.Seek professional help
If you're really in over your head, or you know you don't have the discipline to tackle your debt problem on your own, a credit counseling firm can help. They may be able to negotiate with creditors on your behalf, and lower the amount you owe or the interest rate you're paying. There are some less than reputable firms out there, so be sure to do your research with the Better Business Bureau and get referrals before you sign up. It's easy to accumulate too much debt, but much harder to whittle it back down. If you stop using your credit cards and implement some of these solutions, you can look forward to seeing what's in your mailbox again.Copyright © NO-DEBT.INFO