While effective, debt consolidation loans can be a tricky method to get out of debt because you are usually on your own. Unlike the other debt consolidation option known as debt management, you will be in charge of every little detail of your debt payment scheme. No professional is hired to guide you, provide you with advice and to urge you forward when debt desperation or discouragement come knocking. The convenience of having a professional help you out is a luxury that some people do not have. If you are short in cash with mounting debt, you want to pool in your limited resources and opt to send it towards your debt payments instead.
Fortunately, there is a way to help you cope with the lack of professional help and that is to create a debt payment plan. It is just like going on a road trip on your own. It doesn’t matter if you do not know the place – as long as you have a map as a guide, you can get to your destination with ease.
A payment plan is an effective road map that you can use towards debt freedom. Before you apply for the loan that will pay off your high interest credit obligations, you need to understand your finances first.
It all begins with a budget plan. You list all your income sources and your expenses to find out how much you can afford to send towards your creditors on a monthly basis. To maximize your debt payment fund, you have to make sure that your expenses are down to the bare necessities. If you can, eliminate as much entertainment expenses as you can – but take care to keep the cost-efficient ones to help motivate and encourage you throughout this restricting time.
Once you have an idea how much debt payment fund you can raise every month, you can determine the loan amount that you can borrow. List the different debts that you will pay off using the loan. The important thing is to not get an amount that you cannot afford to pay every month or is more than what you really need. Also, consider your current interest rate. The loan has to have a smaller rate than your current average.
Using the loan amount that you are targeting, it is time to plot that amount in your payment plan. Since you will end up with only one loan after you have paid off your other credit obligations, this will be more like a payment schedule. It is advisable that all the excess money from your income less expenses computation be divided between your debt payment and savings. Building up your reserve fund is a great way to ensure that you will never miss any payment on your schedule because you are prepared for any emergency expense.
If everything is in order, you can proceed to apply for the loan. Once you are approved, pay off the debts that you placed on your list. Completely pay them off and if most of them are credit cards – keep them. You can opt to close the accounts save for one. This will eliminate or lessen the temptation to use them and create more debt problems for yourself.
After that, plot the date and the amount that you need to pay the new loan every month. If there are debts that were not paid off, include it here as well. Keep your payments and the dates in a place where you will be reminded of them.