Most people who have debt only bother with paying down the minimum amount every month. Paying your debt in this way could mean that you will be stuck in debt for a long time, as the minimum amount could be too small to make a significant difference in the overall debt amount.
If you are to reduce your debt significantly, you will have to make more effort than you are currently making.
You have to start figuring out what each debt amount means to your income and financial health. Based on your analysis, you have to consolidate the debts that hurt your finances the most.
By following the plan described below, you will be ready to enter into a debt consolidation plan that will succeed:
1. Know how much you owe
You have to know the exact amount you owe if you are to come up with an effective plan. Get all your debt statements and use them to total up how much you owe and to whom you owe.
List all your debts by type. That is, credit card debt, student loans and others. Include details such as interest paid per month, monthly fees and other charges.
2. Select the debts to consolidate
When your list is completed, list the debts in order of priority, with the first being the first loan you must pay down and the last being the least urgent loan.
This is not to say that you will neglect your least urgent loans. What it means is that your most urgent debts are the ones you will include on your debt consolidation plan.
It also means that if there is any money that you get outside of your regular income, you will direct this money to paying the highest priority debts.
As a guideline, the debts that have the highest interest rates should be the ones you consolidate. This is because such loans that tend to increase your debt in significant amounts. Debt consolidation will allow you to settle priority debts once and for all and you will be left with a low-interest loan from the debt consolidation company.
You can read debt consolidation reviews to see what types of loans other debtors prioritized.
3. Work out the amount of monthly payments you can afford
It is good to approach the debt consolidation company with ready calculations of how much you can pay.
To determine how much you can afford, calculate your total expenses, including repayments for the loans that you will not consolidate. Subtract this amount from your income.
You should also deduct a small amount that you will be setting aside for contingencies. Whatever remains in your income is what you will commit to your debt consolidation plan.
Your debt consolidator might change the plan a little, but it is always a good thing to have this part figured out because it is a critical step of starting to get in touch with your finances.
4. Bottom line: Commit to your plan
On approval of your debt consolidation plan, you have to commit to it in order for it to be successful. Your debt consolidator will be at hand to assist you, but for the plan to succeed, you have to be all in.