Debt Consolidation Plan

How does a person who is struggling to pay bills each month come up with a debt consolidation plan that will work? It is not an easy task and requires a lot of honesty and introspection. However, there are many ways for someone to approach developing a debt consolidation plan.

The first step in creating a debt consolidation plan is to determine precisely how much is owed to all creditors. Unfortunately, the only way to do this is by gathering all bills and statements and getting down to the nitty-gritty. If all of these records can not be found, call the company and get the present balance. A debt consolidation plan can not be started without knowing the total of the balances due.

The next step in creating a debt consolidation plan is to figure out how much money can go out of the household each month without putting a strain on the budget. In this case, the basic groceries should be able to put on the table, as well as paying the bills that will keep the lights on, the bank from knocking on the door and the phone working. Anything after that is the kind of money that should be considered when making a debt consolidation plan.

After figuring out what kind of money is needed when searching for a debt consolidation plan, the next thing to do is figure out which type of plan is the best to meet the needs already determined. Some people need to have a large amount of money up front to pay off many bills, because there is simply no money left at the end of the month to pay even the basics. This is when credit card debt is high and minimum payments are not making a dent into payoff progress.

In these cases, a loan may be best. However, secured loans (like home equity mortgages) are best, so those looking for a debt consolidation plan like this should have considerable equity available in order to make it worthwhile. Another option is credit counseling. Once used to be a stain on a credit report, experts are now saying that this is better than declaring bankruptcy and at least the consumer is looking for assistance in making regular payments. This debt consolidation plan does require some form of payment, though, for the counselor's time in planning a budget and help with creditors to reduce interest and/or payments.

The last step in a good debt consolidation plan is the most important one. The debt consolidation plan has to be stuck to consistently. Any kind of debt consolidation plan must be paid back, in some way. Too many times, once the creditors stop calling, the consumer will just go back to the old ways of spending and the cycle will start again. Once the credit card balances are lowered or eliminated, keep them that way, even it means lowering the credit limit or closing some of the accounts. Pay in cash whenever possible. Track expenses carefully, too. This will help assure that the plan will work for the long term.