Debt consolidation is an effective way of managing debts. What debt consolidation does is to take up your high interest loans and debts then put them into one loan that is manageable and in most cases, has lower interest rates.
Though this is not the only solution to your debt troubles, debt consolidation gives you better perspective into your finances and makes it possible for you to organize your finances. If you are determined, this can be your ticket to financial freedom.
What steps to take?
Here are the steps taken in debt consolidation:
- Determining your debt
The first step to consolidation involves taking the calculator and taking count of all the debts in your pocket. You shouldn’t leave out any debt or an outstanding bill. Just as tough as decluttering is, so will this step be. This is because you will have to face the reality and know exactly what is happening in your life.
To make this easier, use spreadsheets and list down all your debts including the amount owed, fees payable, and the interest rates charged.
- Outline your income
After listing all the debts to your name, list your income. All your sources of income should be listed. Besides income, there are mandatory expenses and you should list them too. Include the groceries and other necessities then include their prices. Once you have all this information, you should balance your accounts with debts and expenses on one side against the income.
You should also classify your debt and loans as secured and unsecured loans. Since this can be an intensive and wrenching experience, you should consider getting a professional to help you finalize the process and look at your account.
- Choose a debt consolidation loan and lender
There are many debt consolidation loan lenders who will guide you on how to consolidate your debts. However, you cannot choose any company you come across. Research and talk to different companies to know how much you qualify for, the interest rates charged, and the cost of debt consolidation. Will you save money in the process?
The selected lender will also advise you on how you will consolidate your debt since you may need collateral. You can use your home, life insurance, or your 401k loan for the low interest rates on the consolidation loan.
With a home equity plan, you can either pay down the loan’s principal or pay through the appreciating value of your home.
- Set a repayment timeline
For how long do you want to repay your loan? Your financial goals are important in determining how much time it will take in repaying the loan. You can pay more monthly if you seek financial freedom from debt earlier. Be reasonable. With the credit counsellor, determine the number of years that will result in higher savings and fast repayment of the consolidation loan.
- Control your spending habits
The reason why you are deep in debt is because of your spending habits. Once you take on consolidation, you should be willing to change your lifestyle and live a debt free life. To start off, create a budget and stick to it, set SMART financial goals, leave your credit cards at home, and try paying with cash only.
In conclusion, the steps to debt consolidation are easy, but you should only go through the whole process if you are willing to lead a debt free life.
Author Bio
Makena Murray is a debt consolidation consultant. For more information on how to consolidate your debts, check out her blog and/or her consultancy firm’s website.
It is very helpful to know about preparing for best debt consolidation plan. Everyone should plan debt consolidation to come up with better debt free life. Most people pay the debts for long time but it’s not worth. Make more efforts and clear the debts as early as possible. There are five smart steps to make for debt consolidation plan. These steps are very useful for the person for deciding debt consolidation. Better idea is to clear the debts which has high interest rates because it will cause more debt consolidation loans. I think everyone should follow these steps to be rapidly debt free.