So you wish to consolidate all your debts, but don’t know where to begin with. Well, that’s not just a dilemma that you are facing, but nearly every debtor has the same problem. But one thing’s for sure, you need to find a source or come up with a solution to get rid of all those big and small debts, asap.
How should you proceed towards debt consolidation?
The first step here is to talk with a reputed and friendly debt consolidation firm. Do remember that at this stage, you need not pay anything to that particular firm right away to provide you the assistance you require. Most firms would be more than happy to discuss your situation with you, without asking for anything upfront or a consultation fee. Here is when you can decide, which firm to go ahead with and which firm to let go. After all it’s your decision and you must be comfortable discussing your “situation” with the personnel in that company.
Now comes the planning part, where the firm would asses all the information that you had provided and come up with a manageable repayment plan for your debt. Here you may also get the choice between the various financing agencies, from which you can take a consolidated loan to pay off all those different debts. Remember, you need to scrutinize a few details carefully;
• Interest rates: This is the most vital part, one which has actually landed you in trouble in the first place and made you opt for a debt consolidation loan. Hence, you must carefully research and calculate the rate of interest that you will need to pay to the financing agency. The interest should also be compared to the current interest on your debt. At times it so happens that the original interest becomes less and the new consolidated loan interest becomes high. Sp you would need to pay attention to the rate of interest you get on your new consolidated loan.
• Terms of payment: The agency, which will help you pay off the different small or big loans you have, would certainly have a guideline for their term of payments. Make sure that you review this document carefully and if you are confused with the jargon or terms used in the contract, get it clarified immediately. Read through the document again and again, until you are sure you know what you are signing and if you are still not sure, or not comfortable with the terms and conditions for repayment, you can still walk away. And of course, never sign a document without reading through it!
Other things to notice and ensure that you don’t get in excess debt ever
The entire idea behind the debt consolidation is to make the repayment as soon as possible, so the credit report doesn’t get tarnished. So make sure that you do not repeat the same mistakes of delaying the payments, not responding to the calls or mails from the loan lender. Here are a few tips that you may want to review carefully.
• Interest: It must be sorted out and written in “black and white,” in the document that you are to sign.
• Date of payment: This should be there in the document, along with a proper clause for leeway.
• Failing to pay: Just in case you are unable to pay the monthly amount to the debt consolidation agency, do inform them well ahead and give them an exact date. The money must be paid on that day.
• Constraints: Have a set budgetary constrain on expenditure head. Never spend more than what you need to. If you have to pull out your credit card because you don’t have cash, then it clearly means that you do not have enough money to buy.
• Pay cash: After clearing all the dues for the month, if you have to buy anything, use cash.
All that advice shall not just help you in debt consolidation, but also in making sure that you don’t get into trouble ever again.
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Kc is a consultant to big finance companies like Crown Money Management and others. He also happens to write finance column for a magazine.