When you have a lot of debts, it might seem as though you’ll never work your way out from under it. If you earn XX amount, paying back XXXX amount in a timely way can seem impossible. But, there are ways out. One option is debt consolidation through a debt management plan. Working with a counselor, you can come up with a payment plan that lets you live within your means while paying down the debt you have. If you want to know how it all works, here’s a step by step guide to help walk you through it.
Step 1: Speak with a Counselor
Debt consolidation is easier when you have a trained counselor working on your side. A credit counselor can help you better understand your debt and how your decisions about money are affecting your life. He or she can help you set goals and work with you to create a plan to reduce and eventually eliminate your debt.
Step 2: Make a Budget
Before you consolidate your loans, it’s important to make sure you have the funds to pay for them each month. A counselor will work with you to help you make a budget. With your budget, you’ll have a sense of your income and your expenses. After comparing your expenses to your income, you might find that you do have enough to make a sizable debt payment monthly, or that you don’t quite have enough to make ends meet. A budget also helps you see where you might have been overspending and where you can cut back so that you have additional funds to put towards your debt each month and so that you stop taking on additional debt.
Step 3: Sign up for Debt Management
A debt management plan is one option for debt consolidation. You aren’t applying for a new loan and using the amount to pay off several smaller loans. Instead, you’re working with a counselor, who’s working with your creditors, to come up with a payment plan that fits your budget. Your credit counselor might be able to negotiate with your creditors to get them to lower your interest rates or waive fees, in exchange for your being in the program.
Step 4: Make Payments and Avoid Additional Debt
Once you’re in the debt management program, you need to make regular payments, to the credit counseling agency, not to your creditors. The agency then distributes the money to the creditors who are participating. Now that you’re working on bringing down your debt and eventually getting out of debt entirely, it’s important to avoid taking on any more loans. In most cases, you won’t be able to apply for any new credit or loans while you are in the program, as it will appear on your credit report.
When you’ve made your final payment on your debt management plan, our credit counselors are happy to continue to work with you. We can help you come up with a plan for your financial future and help you work to restore your credit score and history now that you’ve gotten out of debt.
Image Source: Flickr
[cf]skyword_tracking_tag[/cf]