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Do-It-Yourself Debt Consolidation

[Mar 27, 2009.]


Debt consolidation and elimination starts with a desire to live debt-free and to enjoy the benefits of spending less than you earn. Follow these steps if you want to start the debt consolidation process on your own:

Start with a debt inventory.

In our busy financial lives, it’s easy to lose track of a bill here or there. In fact, a growing number of Americans fail to balance their checkbooks on a regular basis. Therefore, it’s no surprise that so many of us battle with debt. Keep track of all your mail over the next month and write down the outstanding balances and interest rates for each:

  • credit card

  • auto loan

  • student loan

  • mortgage

  • home equity line

  • department store credit account

  • utility bill

  • payday loan, and

  • any other personal debt.

Survey your available credit lines.

By the time you realize you may need help with debt consolidation, lenders are less likely to lend you a helping hand. In fact, some credit card companies have even started to reduce credit lines below customers’ outstanding balances. If your situation hasn’t reached a crisis, you may be able to streamline your process by consolidating debt into a smaller group of credit cards or credit lines. Launching your personal debt consolidation plan may require you to move quickly once you start making balance transfer requests.

Maximize your income and minimize your budget.

Whether you ask for overtime or take on a second job, your debt consolidation strategy will require you to bring more money in the door. Consider raiding the attic for prospective eBay or Craigslist sales. Drop unused clothes at consignment shops to generate extra revenue. Cut back on dining out and excess entertainment to preserve more cash for your debt.

Choose a debt consolidation strategy.

Financial advisors argue over which of these two strategies is the most effective, but they agree that any successful debt consolidation program requires choosing one:

  • Attack high interest rates first. Suze Orman and other media financial experts often advocate paying off the debt with the highest interest rate first. This will save you the most money on interest over time, but it can be a slow process if your highest rate debt also carries the biggest balance. With discipline and time, this debt consolidation and elimination strategy can gradually restore more cash to your monthly budget.

  • Use the debt snowball method. Popularized by talk show host Dave Ramsey, the “debt snowball” starts small and ends huge. By paying off your smallest bill first, regardless of the interest rate, you can experience the emotional thrill of closing out an account. With that motivation, proponents of this method claim that you can stay focused on each successive goal while making just minimum payments on your other debts.

Find out whether your creditors will negotiate.

If you have the stomach for some hand-wringing conversations, consider contacting your creditors to see if they will accept a lump sum as payment in full for your debt. Many banks and consumer lenders often sell unpaid accounts to collections agencies for pennies on the dollar. Accepting an offer may not look great on your credit report, but it can get you out of debt sooner. Even if lenders are unwilling to settle for less cash, some customer service agents can suspend late fees, overlimit charges, or excessive interest during a limited payback period.

Seek qualified debt consolidation help when you need it.

Even with the best intentions, debt consolidation isn’t always something you can tackle yourself. Non-profit credit counseling organizations certified by the NFCC can help you with any step of your process to become debt-free. An impartial debt counselor or financial advisor can also keep you accountable to your goals while assisting you with some of the toughest debt negotiations along the way.


About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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