If you’re struggling with overwhelming debt, then debt consolidation is a great debt relief option for you to consider. Basically what it does is combine all of your different monthly debt payments into a single payment with the combined amount. This both makes the payment easier to make (as the due dates are all at the same time) and can lower your interest rate.
Most people that look into debt consolidation opt to get the service through a professional debt relief company. However, more and more people are going about it themselves. This is called DIY (do it yourself) debt consolidation. Though DIY debt consolidation takes much more effort than handing the task of to a company, it has many benefits including total control of your money and hefty savings.
Below are eight steps that you can take to safe DIY debt consolidation.
It is very important that you prioritize your debts before you do anything else. These are the debts that have the highest interest rates and will thus cost the most to pay off in the long run. You should order your list from the highest interest rate debts to those with the lowest interest rates. It is important to include your shorter term debts, such as auto loans, credit cards, and personal loans first, before doing so with long-term loans like mortgage loans and student loans.
2. Calculate Your Expenses
You can’t pay off debts with money that you don’t have. For this reason, it is essential that you figure out how much you spend (and make) per month. Calculate all of your expenses – down to the cent – and see how much of your income is left over each month. You should use this amount as an estimate to how much money you can afford to put towards your debt payments each month.
3. Set Up a Budget Plan
If you are going to attempt to do your debt consolidation yourself, then you need to have a solid budget plan set in place. This is the logical next step in the process after calculating your expenses. With your calculations, set up a budget plan, setting specific amounts of money aside for certain expenses. Doing this will ensure that you only spend that amount of money each month and that you put aside anything extra to pay off your debts.
4. Make Contact With Your Creditors
Once you have your debts prioritized, your expenses mapped out, and a budget plan set up, you should talk to your creditors. Talk to the ones that you ranked most important first. It is necessary to first make sure that you creditor still owns your debt and hasn’t sold it off to a creditor yet. It is best to contact your creditors both by phone and by letter. Keep track of all of your communication and keep at it (staying calm) even if they are rude.
Explain your situation thoroughly and explain why you would be better able to make your payments if they were consolidated. Explain why you are behind on your payments. It is up to you to convince your creditors that they should understand your position and allow you to consolidate your debt. Furthermore, you must inform each and every creditor of each and every one of your other debts.
5. Keep a Record of Your Income
All of your creditors will want proof that you really are too hard strapped with cash to make their payments on time. By keeping a record of your income you can easily do this. Pay stubs and tax returns are two simple documents that can help you do this.
6. Validate Your Debt
According to the FDCPA, you have the right to question your debt before paying it off. This is especially true when the debt has been passed from your original creditor to a collection agency. Do this before paying off any of the debt.
The most exhausting part of a do-it-yourself debt consolidation is negotiating with your creditors. While this is similar to initially contacting them, it will take a little more effort. Contact each of them and attempt to lower the overall interest rates. Paying the debts back is a lot easier when the interest rates are lower. A little money is better than none.
8. Send in Your Payments
Perhaps the most important thing you can do when it comes to do-it-yourself debt consolidation (or just paying debts back in general) is to actually make your payments. Meet the new payment agreements that you’ve made. Set up automatic payments if this is something that you have struggled with in the past.
DIY debt consolidation can be a very good choice for many people. It will make your debts much easier to pay off and lower the overall amount that you will have to pay in the long term. Furthermore, it will save you a heck of a lot of money versus using the help of a debt relief company.