Debt consolidation is one of the best strategies to relieve your debt. However, you must consider the pros and cons when speaking about finances, or else you will be overwhelmed by the outstanding consequences. Before making up your mind, check out these steps for successful debt consolidation planning for your better future.
The steps below will handle your affair more significantly. You cannot lose anything, that is why we come to save you. Let’s dig in immediately!
What is Debt Consolidation?
It is important to know more about debt consolidation before depending on it as your financial strategy. According to Forbes, debt consolidation offers a way to merge multiple debts into a new loan so that you will be more focused on a single monthly payment.
There are several methods to consolidate your debts, like debt management programs and debt consolidation loans. However, all of them have one advantage: offering simplicity in debt payment with a lower interest rate compared to credit cards.
8 Steps For Successful Debt Consolidation Planning
Debt consolidation sounds like a way out from debt fatigue or a debt disaster. Yet, it is crucial to consider these steps for successful debt consolidation planning.
1. Evaluate Your Debt Situation
To solve a problem requires a thorough assessment of your financial situation. The process allows you to recognize the number of debts you have and their interest rates.
You must include the minimum payments required for each, as well. However, unfortunately, secured debts, like home equity loans, are not eligible for debt consolidation.
2. Look Over Your Credit Score
A high credit score–between 800 and 850, but between 670 and 739 is already being considered as “good” –puts you in a more favorable position for a debt consolidation program with lower interest rates.
It is beneficial for your savings, especially for a long period of time. So, it is recommended that you review your credit report after requesting it. If, however, your score is considerably low, it should be better to increase it beforehand by doing, such as paying your debts in a timely fashion and increasing your credit limit.
3. Learn Your Debt Consolidation Options
There are various options, and below are the most common ones.
a. Personal Loan
The debt consolidation loan, or personal loan is favored for its structured plan and fixed interest rates. If your debts are between $5,000 and $50,000, a personal loan is one of the best options. However, keep in mind that your credit score must be good, or else you will not be qualified.
In addition to that, a bad credit score will put you in a worse position–and prevent you from completing the steps for successful debt consolidation planning–compared to repaying credit cards; the interest rate will be greater, and the loan usually must be repaid within 2 to 5 years.
b. Home Equity Loan (HELOC)
A home equity loan is only eligible for house owners or ones who have sufficient equity–the house’s value is deducted by the month of mortgage one owes. The type of loans is also favored because of its lower interest rates compared to personal loans and even credit cards.
However, you will usually be charged a fee for the loan. In addition to that, the consequence of losing your home is high if you fail to repay the loan.
c. Debt Management Plans (DMPs)
Debt Management Plans is a mutual agreement between you and your creditors. Sometimes the plan is assisted by non-profit credit counseling organizations or agencies. The main purpose of the plan is to find a solution for you to pay your debts more comfortably by arranging them, including reducing the monthly payment.
Despite the privilege, there are some disadvantages, such as the longer duration of debt repayment, unfixed interest, and fee for the service of the agency.
d. Balance Transfer Credit Card
A balance transfer credit card is a temporary relief that allows you to move your existing credit card balance to another one by another provider. Usually, it is used as a strategy to save money with lower interest rates.
However, there are requirements for you to be eligible for the offer, including having good credit scores and paying off the balance on time.
4. Make a Budget Plan
One of the most important steps for successful debt consolidation planning is creating a realistic budget plan. The loan that helps you still demands the repayment. Thus, start noting down your monthly income and expenses of primary needs so that you will be prepared to repay the debt.
5. Choose The Best Consolidation Method and Lender
After completing step one to four, choose the most suitable method for your current situation. If the debt consolidation loan is your choice, make sure to compare offers and benefits from several good institutions. If you are interested in the balance transfer credit card method, see if the interest rate is low or even 0% rate.
6. Make a Repayment Plan
After selecting the most suitable lender and method, it is recommended to create a structured repayment plan, including scheduling the payment, preparing the amount of monthly payment and the duration of the debt repayment. If you follow the plan thoroughly, it is surely expected that you will be freed from your debt sooner.
7. Pay Attention to Your Progress
The future is quite unpredictable. You may have a stable income at the moment but probably not in the future; the national economy can change, as well, but not in your favor. So, it is important to regularly monitor your finances and occasionally adjust your repayment plan.
8. Seek Professional Advice
Managing your finances can be quite frustrating and overwhelming. If you are stuck, seeking assistance from professionals is nothing to be ashamed of. There are plenty of credit counselors. They will surely help you to negotiate with creditors and create your financial plan more accurately.
Are You Ready to Be Debt-Free?
So, those are the steps for successful debt consolidation planning. All of them are necessary and helpful if you follow them, especially learning the most suitable method for your situation and arranging your repayment plan. If you are hesitant, do not be ashamed to seek advice from experts.