People assume debt consolidation to be a tedious job, but it is quite a simple job. Check out the 5 easy steps to debt consolidation:
1. Acknowledge your debt burden
This is where you need to see those unopened bills and credit card statements. One needs to differentiate good debt from bad. For instance, mortgage debt which is less than 25 percent of your gross revenue is regarded good debt while consumer debt is considered bad debt. Once you’ve calculated your total debt, you need to find out the debt with the highest interest rates and the actual interest which you’re paying on those debts in aggregate.
For instance- three credit cards with a credit limit of $5000 to be paid off after 2 years in actual will totally cost $20440 in total- leaving a total of $15000 to be in arrears. Thus, you need to keep a check on what are you actually spending on and evaluate how much of money do you require to clear it out all. Serving the debt is a good option for all while some people opt for bankruptcy at this stage.
2. Make your budget
Make a list of monetary items you need for your daily life, savings and entertainment purpose to meet your debt repayments. May be you need to make a cut to some of the luxury things from your budget till you get out of your debt.
3. Get your debt consolidated
How to Apply
All you need to do is call and fix a meeting with a fiscal advisor at the bank of your choice. Often people choose the bank which offers the best rates and has a good history with debt consolidation loans and mortgages.
Though different lenders hold different documentation requirements depending on your credit history, but the most common ones needed comprise of a letter of employment, statement of last two month for all the credit cards and loans you want to clear off and letter from collectors.
Term Usually the term period ranges from 3 to 5 years. No debt consolidation company provides loan for more than 5 years.
4. Clear out the debt
This is usually decided by the lender who selects that which debt will be paid off first. If he gives you a free will, then you should commence by picking the debt with the highest rate of interest first. For those who want to clear out the lower interest loan first, they can start with that first. And, if you still cannot decide and select which loan needs to be cleared first, then you should pay it off in the timely manner.
5. Follow the plan
Consolidation is only for those who work to free themselves from the debt. Once you stop spending and overspending, you can pay off one set and move ahead to the next set. Keep your budget low till all the bills are paid off. The moment you get debt free, you can continue with your investments and savings.