Not everyone wants to deal with another service provider. Although everyone looking to accomplish this task is in a rough place financially, it can always get worse. For those in that worst spot it will be nearly impossible to get professional help since that’s an additional expense. Even the best debt consolidation companies demand payment for their work (as well they should).
If you’re willing to roll up your sleeves and take a do-it-yourself approach then you can find some relief from the stress. Looking at one monthly bill with a more reasonable interest rate feels a million times better than having 20 separate bills come in, even if they add up to similar amounts. Here’s five steps you can take that can form a blueprint for your own debt consolidation attempt.
Prioritize & Calculate
The first thing you need to be doing is prioritizing which debts have the worst impact on you now and will alleviate the most stress to get rid of. That may sound like you should attack the biggest debt but that’s not always the case. Sometimes the largest interest rate is the one you need to go after since you’re losing the most cash there. Dave Ramsey talks about this with his Debt Snowball Method. You can try to consolidate the smallest debts with the highest interest rates first and then apply those payments to the next largest, and so forth until you escape.
Make a Budget Plan (And Stick To It!)
Next you need to calculate every single income and expense you have. You’ll find lots of places that you waste money on (drinks, pizza, clothes) that you can cut out and apply to your debt. You need to know exactly what you can afford to apply to your payments every month and make a commitment to that amount. You can then have that amount auto-transferred to a separate account just for this purpose, which forces you into compliance and keeps you from making mistakes.
Contact Your Creditors
Here’s the not-so-fun part, but the most rewarding. You need to reach out to each creditor, first and foremost to make sure they haven’t sold your debt to a collection agency yet. Make sure you’re taking down notes on the time of each call, the topics discussed, and the agreements made.
Your goal here is to talk to them as a real person and explain your hardship, your mistakes, your willingness to get back on track, etc. You want them to agree to a lower interest rate or even a reduction in your overall owed amount. But not yet. What you’re doing is making initial contact so that they realize you’re drowning in other debts too and they have a better chance of being paid if they work with you.
Validate & Negotiate
Once you have the go-ahead from whoever you can get it from, validate your debt first. The Fair Debt Collection Practices Act by the FTC will guide you to making sure you even have to pay the debt, based on the practices used by your creditors and how many times they’ve been sold to third parties. Once you know what you’re responsible for, you can then begin to negotiate. Unfortunately you don’t have leverage and will be depending on their grace, but you can make a rational argument that will help persuade.
Make Your Payments
Now that you have your newer, lower rates and lower debts, you can negotiate with your bank or another company to pay these debts off in your name. They are essentially purchasing them, which is why you attempted to make them a more attractive purchase in the first place. Your goal is to get all of your debts under one new owner at a more competitive lower interest rate.
Once this is done, you need to set up an auto-draft with your bank to make these payments for you automatically with no intervention needed. This keeps you from forgetting or being angry or depressed and choosing to dig a deeper hole. You will be free in a reasonably short amount of time if you do this, and can even make additional payments on the principal if you’re disciplined. And make sure you take on no additional debts!