When you want to consolidate debts into one payment, you have a decision to make as to whether you want to do it yourself or not. You have the option to hire a professional to help you accomplish debt consolidation and this specific program is called debt management.
Consolidating debts through debt management is an effective way to pay down your balance. However, some people just cannot afford to waste the money on service fees. Although the program only requires you to pay a maximum of $50 per month, it can still be a significant figure to someone who is desperately trying to make ends meet.
Three options to consolidate credit without professional help
If you are sure that you will have no problems managing your own debt payments, the first step that you should do is to identify your options for consolidating debts on your own. There are three programs that will help you consolidate debts effectively.
Debt Consolidation Loan
Consolidating debts by taking out a master loan to help pay for your multiple credit obligations is known as debt consolidation loan. You will apply for a loan, go through the usual process and credit checks so the lender can determine if you are credit worthy or not. When you are approved of the loan, you will use the funds you received to immediately pay off any credit card debt, medical bill, and even secured loans that you have. The goal is to combine them under one lender so you have a more simple payment plan. The end result of this is a lower monthly payment plan because your balance is stretched over a longer payment period. Not only that, part of your target is a low interest rate to help lower your monthly contributions further. This can only be done if you have a good credit score or a collateral. If you have neither, try to see if the two other options below can work for you.
Peer to Peer Lending
Also known as social lending, this is similar to debt consolidation loan but you will be borrowing money from your peers. P2P (peer to peer) lending is a great way for consolidating debts despite a bad credit score or a lack of collateral to offer as security. Although you will get a higher rate compared to those with a good score, peer to peer lending offers a generally lower interest rate as opposed to the traditional loan rates. This is probably due to the fact that everything is operated online so the lender do not really have to worry too much about profits taken from interest rates. Instead of having banks or private lenders giving you the money, it will be individual lenders and basically people from the community who will finance your need. All you have to do is to apply for a P2P loan with one of the known peer to peer lending companies like Prosper.com or LendingTree.com. They will do a background check on you so that they can display your credit risk – which will be the basis of lenders in determining if they will finance you or not. In some cases, more than one lender can finance your loan. All transactions and payments will go through the P2P website.
In case consolidating debts through a loan is not appealing to you, balance transfer is one option you can look into. Instead of a loan, you will apply for a new credit card that offers zero interest on balance transfers during the first 6-18 months of the account. The time frame will depend on the details of the introductory promo of the new card. This is a way for credit card companies to lure you away from your old creditor. The idea is to shift all your high interest rate card balances to this new card. During the promo period, you will pay down the debt and all payments will only be credited to the principal debt. You do not have to worry about any interest being added to it. Try to pay the full debt or at least a significant part of it during this period. The card usually has a high interest rate after the promo period and that could accumulate your debt again.
Tips to make DIY debt consolidation successful
All three options of consolidating debts on your own is effective but you have to follow certain rules to ensure that it will be effective. Remember that you will be working on your own. That means there will be no professional giving you instructions or guidance throughout the debt relief program. Here are some tips that you can consider to help make this DIY debt consolidation more successful.
Research. What you lack in expertise and experience can be compensated by the knowledge that you can get from a thorough research of the debt solution you will use. Make sure that you understand the process, qualifications and the after effects of the debt solution that you will choose.
Do the math. Before you really consider consolidating debts, it is highly advised that you do the math first. See if the new payment plan that credit consolidation can bring is really beneficial to you. There are online debt consolidation calculators that you can utilize for this. Here are some sites with the tools that you can use for this purpose: Bankrate.com and Lendingtree.com.
Stick to the plan. Some people give up in the midst of a debt consolidation program because it seems to take a long time to complete. Well this is to be expected because the restructuring of the payment plan is all about a lower monthly payment. There is no debt reduction here so that can only be achieved by a longer payment period. Just stick to the plan and focus on what you have accomplished so far.
Grow your income. To help support your debt relief program, try to find another source of income. That way, you can grow your debt payments and thus make better progress at getting out of debt.
Practice proper financial management habits. Lastly, you may want to start correcting the mistakes that you made in the past by practicing the right money management skills. Among the habits that you need to develop includes budgeting, saving and smart spending.
Of course, part of your resolution is to stop accumulating any more debt until you have taken control of the current. Be smart with the debts that you will choose and try to limit the unnecessary spending to help you live below your means.