Consolidation is one of the best and easiest ways you can get rid of all your debts in the shortest time possible. With this method, you will combine all your outstanding liabilities and loans, along with their interest of course into one single loan that comes with a relatively lower interest rate. So rather than paying several different lenders every now and then, you will only have to pay one lending company. Not only are debt consolidation loans easy to get, but they can also make debt repayment much easier to deal with.
Steps to Debt Consolidation
Know exactly how much you owe.
The very first thing you should do is open those bills and credit statements that you have tried to avoid for months. It is important to differentiate good debt from bad debt. Good debt, for instance, is mortgage debt that takes up less than 25 percent of your gross income. Do not forget to include the money you owe to your friends or family and other creditors. Then find out which of your debts has the biggest interest and know how much interest you actually pay on debts.
Set up your budget.
Come up with a list of all your expenses in a month. This should include how much you should spend on daily living, leisure, emergency fund, and debt repayment. As you calculate your budget, it may be necessary to cut down costs on some aspects to make it easier for you to wipe out all your debt fast.
Apply for a debt consolidation loan.
If you haven’t applied for this loan before, there is nothing to worry about. Many people, in fact, find debt consolidation loans easy to get. First, choose a bank where you will also pick and make an appointment with a financial advisor. If you want to get the best rates, you may as well rely on the service from the same bank where you keep your savings or where you took out a mortgage loan. In terms of the documents you may need for consolidation, you should prepare proof of employment, at least two months’ statements from the lenders or credit unions you owe, as well as the letters from your creditors or collection agencies.
Start your debt repayment.
In many cases, your debt consolidation lender will be the one to decide which creditor or lender will be paid first. Those with the highest interest rates are the ones that often get paid first. But if you want the smaller ones to be settled first, you may do so.
Stay focused and stick to the plan.
While you may find debt consolidation loans easy to obtain, you should not fall into thinking that getting one ends all your problems. This whole process will only be successful if you keep yourself determined and disciplined enough to pay off all your debt. So while your consolidation company is still in the process of paying your numerous creditors one by one, make sure you do not overspend especially on your credit card. Use a debt consolidation loan just a tool for you to live your life without debt.