There are debt consolidation program steps that you need to follow if you want to make it effective. Ideally, you do not want to miss out on a step because it will really help you progress properly. You have to understand that your debt relief journey should not just help you pay off debt. It should also teach you how to avoid it. Not only that, but an effective debt solution will identify what you did wrong to land in a huge amount of debt.
According to the latest report, consumer debt has grown consistently over the past 21 quarters. Regardless of the economic situation, it seems like Americans cannot stop using debt. While this is acceptable, what is alarming is the fact that it is growing. That means the borrowed money is greater than what is being returned. If we do not put a stop to this, it might put a lot of people in a financial crisis.
This is why it is important to identify what causes debt. Any kind of debt relief program will not be completely effective if you fail to address the reasons why you got into debt in the first place. This is why following the steps will really be beneficial.
Debt consolidation program steps to complete
To avoid confusion, the debt consolidation program in this article refers to the strategy that uses the assistance of a credit counselor.
So what are the debt consolidation program steps that you need to go through?
Meet with the counselor
The first step if to go to a credit counseling agency to meet with a credit counselor. There are non-profit organizations that offer this service. But there are also those that require payment. While free services are ideal, they will provide limited services. If you really want to get the full debt relief assistance, you may want to opt for the paid service.
Understand the fees involved
Even the free service can still come with fees – but it will be a minimal amount. Consultation and counseling is free. But once you enroll in their debt management program, you may have to pay a fee. It will either be a percentage of the debt enrolled or a fixed amount.
When discussing the payments, you need to talk about what type of service is included. It will help you manage your expectations and define what they will do and your own responsibilities. This will also avoid any miscommunication in the future.
Identify the credit accounts you can enroll
When you meet with a credit counselor, you should be ready to discuss your financial situation with them. You do not have to give personal numbers or bank accounts. But you need to reveal your debt and income situation. These details will help them determine the right debt consolidation program that you can use.
There are debts that you cannot include in the debt consolidation program. This has to be clear from the start.
Come up with a repayment plan
This is probably one of the most important debt consolidation steps that you need to focus on. This is called the debt management plan or DMP. You have to check the DMP that the credit counselor will draft. You need to approve this before it is shown to your creditors and lenders.
When the credit counselor presents this to your creditors, they will try to negotiate better terms. It is not guaranteed but they will try to lessen what you have to pay.
Commit to paying your debts
When you approve the repayment plan, make sure that it is really something that you can afford. If this is approved by the creditors and lenders and you failed to keep up your end, it will not be good for you. The debt management plan will be considered void. Any benefits like lower monthly payments, waived fees or other negotiated terms will be ignored. You will be back to square one. So be careful before you agree to the plan.
Make sure that your budget plan is updated once the plan is approved. Put the debt payment on top of the list of priorities. This will ensure that your monthly payments will always be funded.
Stop borrowing money
This is not really a part of the debt consolidation program steps. But it is important because it helps sustain your debt payments. While you are paying your existing balance, you need to keep a tight lid on your credit spending.
The debt management plan will freeze your credit accounts so this is not really hard to do. As long as you are still paying off the debt, you will not be allowed to use it. However, you can still open new credit accounts or lines of credit. So it is up to you to keep yourself from falling into the temptation.
How to make debt consolidation effects last
Once you complete the debt consolidation program steps, it will take an effort to make it last. According to one survey, more than half of respondents admitted that they were struggling with their financial lives. Since you are already debt-free, you are probably not feeling the same struggle. And that is a good thing. Unfortunately, that does not mean you should relax. You need to work hard to make it stay that way. It is the only way you can strengthen your financial position.
Fortunately, there are tips that you can follow to make it happen.
Use credit with a purpose
Start by making a commitment to only use credit with a purpose. Do not use credit for impulsive purchases. It should be planned. Not only that, it should be a part of your budget. When it is a part of your budget, that means you have considered where you will get the funds. That is usually a good sign. When you include your budget, it means you have thought about how you will pay it back.
Borrow only what you need
It is also important to make a commitment to borrow only what is necessary. If you will borrow money to help you pay for a purchase worth $2,000, stick to that amount. Do not borrow more than that and use it to buy unnecessary stuff. That will just destroy everything that you worked hard to achieve.
Be ready with a repayment plan
Before you finalize a debt application, make sure you know how to pay it back. This is why you need to make sure you consult your budget plan. If you know that you cannot afford to pay it back, then do not borrow the money. If you can afford it, then create a repayment plan. That way, you can be confident that this debt will not destroy what you have accomplished after completing the debt consolidation program steps.