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The Dos and Don’ts of debt Consolidation

Written by: Joe Sinkwitz

Being in debt over your head can cause considerable stress. Not
knowing what to do about it can cause even more. This article
will give you an idea of what you need to do to start climbing
out of debt.

First, here are the two big don’ts. Do not simply ignore the
problem. It will only get worse. Ok, so now you’re paying
attention to the problem. Do not simply stop paying your bills.
That will only cause you to lose your house, your car, and ruin
your credit.

Now that you’re paying attention to the problem and resolved to
pay back your debts, what do you do? Do you have a budget? It is
absolutely essential that you have an accurate budget or you
won’t know how much you owe and how much you are able to pay.
First, make a list of all your income. This includes income from
your job, interest earned on investments, alimony payments (if
you’re on the receiving end), rental income, social security and
disability payments. Include everything that comes in. Lottery
and gambling winnings don’t count here as they’re not steady.
Next, make a list of your expenses: mortgage/rent, car,
insurance, utilities, taxes, groceries, meals out, alimony (if
you’re on the paying end), movies/entertainment, those three
iced mochas with two extra shots per day at Starbucks, lunches
at work, and anything else you spend money on. If your expenses
are less than your income, you’re in good shape. You can still
use some of the techniques below to improve your financial
position.

However, if your expenses are greater than your income, you’ve
got to do some thinking. The first order of business is to cut
out unnecessary expenses. You don’t really need three iced
mochas with two extra shots from Starbucks everyday. Even if
you’re only buying them on work days, that’s $300 per month.
Don’t buy them. Stop going to the movies, and cook at home more.
Basically, cut out all the luxuries. Next, see if you can get a
better deal on the non-luxury items you use. Phone companies
have all sorts of plans available. Call them and see if there’s
a plan that will be cheaper for you. Power companies often have
on peak and off peak hours with different rates - try to
schedule your major power usage (think clothes dryer and air
conditioning) during the cheaper hours. Call up your credit card
issuers and ask for a lower rate. If possible, transfer credit
card debt from your higher interest cards to your lower interest
cards. Call your insurance agent and ask for a lower premium.
For any expenses that go to a company in a competitive industry,
like insurance and credit cards, call up the company and try to
get a lower rate. If you cut your expenses, you may be able
repay your debt without resorting bankruptcy or further loans.
If not, maybe a second job could get you the extra cash you need.

So you’re living in a house with the air conditioning off, dirty
clothes, eating ramen, working two jobs and you still can’t pay
off your debts. What now? You need to prioritize your debts and
expenses. mortgage or rent come first, then car payments,
utilities, and anything that could get you put in jail if you
don’t pay. Subtract the sum of these expenses from your income.
That number is what you have left to pay your other debts and
expenses. Now you need to call up you creditors and explain your
predicament. Be honest - don’t make up a story about you grandma
dying and how much her funeral cost, unless, of course, she
really did die and her funeral is part of the reason you’re in
debt. Almost all of your creditors will be willing to work with
you. They want their money back and working with you is cheaper
for them than sending your account to collections. In the case
of credit card, the may lower your interest rate and perhaps
waive accrued late fees and some of the accrued interest. They
will also probably freeze your card to prevent you from spending
more on it. When you’re talking to your creditors, don’t offer
to pay them more than you can afford. Be honest with them. Tell
them you’ve got $X total per month to go towards debt payments
and you’ve got $Y of debt in total - not just to them - to pay
off. Ask them what they’d be willing to accept, but don’t commit
to that figure until you’ve talked to all your creditors first.

What if that’s still not enough? Then it’s time to consider
consolidating your debts via some sort of loan. If you own your
home and you’ve got enough equity in it to be able to
consolidate your debts, that might be a good option. Just be
sure that you can cover the payments on that loan, or you’ll
lose your house when you fall behind on the payments. There are
other sorts of loan options available, but the problem is the
same: be sure you can cover the payments on the new loan. It’s
no help to take out a loan that you can’t pay for.

The last resort option is bankruptcy. You want to avoid
bankruptcy if all at all possible, as it will stay on your
credit report for many years and hurt your chances of obtaining
new credit. However, if you’ve done all the steps above and
still can’t pay off your debts, bankruptcy is your only option.
The bankruptcy process varies, but in all types, a plan will be
worked out via the courts whereby you will pay back a portion of
your debts over a period of time based on how much income you
have available.

After reading this article, you may be thinking that it sounds
like a lot of work. It is a lot of work, but it’s doable. If it
still sounds daunting to you, you may want to consult one of the
various debt management organizations available. Be careful,
many of the ads you see for debt consolidation are Scams. Your
local Better business Bureau and sites like MyMoney.gov can help
you find a reputable organization that can help your manage your
debt.

For more information, please visit www.creditcardresource.net.

About the author:

credit card Resource, credit card
marketplace for the people, has been in business since 2005.