Debt Consolidation Plan

Create Your Debt Consolidation Plan

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You can create your own debt consolidation plan. It is possible to consolidate your debts on your own. You simply need to carefully determine how much cash you will need to pay off all of your debts. Then apply for a bank loan to eliminate those debts.

First, be sure the terms of the bank loan or mortgage include a lower interest rate than your other credit obligations require. Your goal is to reduce your debt with the least amount of cash expended in the shortest amount of time. After you secure the proceeds from the bank loan you can begin to implement your debt consolidation plan.

With cash in hand from the newly secured loan, the first step toward debt reduction with a debt consolidation plan will be to call your creditors to negotiate an amount that will satisfactorily pay off your debt balances. The creditors may be willing to remove some recent fees if they know you are going to be able to pay them in full. Every dollar you save ultimately can be applied to satisfying your new bank loan. Remember that if you and your creditor reach a settlement agreement the difference between the original balance and the settlement amount can be considered income when you next prepare your tax forms. For example, if your original obligation is $5000 and the creditor accepts $3500, $1500 can be considered income. (Consult with your tax advisor about the consequences of such a proposal before you reach any agreement.) Finally be certain you record the name of the person with whom you have reached an agreement and ask for a written confirmation. It may seem overwhelming at first but as you gain confidence each proposal and subsequent agreement will come easier. Just approach each creditor one at a time until you have completed this phase of your debt consolidation plan.

After you have agreements with all of your creditors, you can then send out all of the payments. Be sure that you know the exact amount and the due date for each agreement. You do not want to receive another statement next month for additional interest because your payment did not reach the creditor before the due date. Also you will risk that the agreement will be voided if the payment does not reach the creditor on time. Maintain detailed records of the amounts paid, the payment dates, account numbers, payment addresses and other pertinent information. Later after receipt of your checking account statement, attach copies of the checks to the creditor statements so you can prove you should have a zero balance.

The next step is critical as you approach completion of your debt consolidation plan. After you have eliminated credit card balances, do not use your credit cards excessively again. Credit cards are meant to be used for convenience and not as a way to borrow cash. Your debt obligations will still exist in a similar amount. You have basically just exchanged creditors. Also hopefully you lowered the amount you will eventually pay. Be sure to make your payments to the new creditor on time and in full, especially if you secured a home equity line of credit or a second mortgage on your home . If you later discover your expenses exceed your income, try to reduce your expenses or increase your income rather than using credit cards again. You do not want to find yourself in a similar credit card debt position and also face an additional similar obligation in the form a second mortgage or line of credit. Take an appropriate amount of time to calculate and implement your debt consolidation plan so you will eventually be on the easiest path to complete debt reduction.