Juggling too many payments throughout the month can be tiring and confusing. It happens when people have multiple small and medium debts, insurance premiums, medical bills and credit card bills due on different dates. An efficient way out of a debt-mess is a consolidation loan. Credit counseling can also help you understand the impact of your payments on your daily budget.
Just going out and getting a debt consolidation loan will not always make matters better. You need to be able to find the right company that is willing to help you towards your financial freedom. Not all organizations are right for everyone, and you need to conduct your research to find a company that meets all your fiscal needs. To understand the importance of a suitable provider, visit nationaldebtrelief.com.
Debt consolidation vs. debt settlement
There are several new companies out there that treat debt settlement and debt consolidation equally. In truth, each of them is a unique debt relief option with varying processes. Debt management programs can have debt consolidation options, and if your chosen company offers both, it is time to learn more about the company. If the shortlisted organization provides debt settlement, it is time to rethink your options. Debt settlement companies work differently than debt management companies. They take the payment from you (the amount you owe to the creditors) and keep it in an escrow account till the creditors agree on a lower payment rate.
There are two risks of this process –
- You can miss many payments in the meantime, and your credit score will suffer.
- The account can become delinquent, and you garner an ill repute.
Debt consolidation with a non-profit
Non-profit organizations do charge money for counseling and consolidation advice, but their charges are usually much lesser than private companies. Do not jump at the first consolidation offer you receive merely because the company promises credit repair. Here are the two things you must do before committing –
- Ring up your state’s regulatory body of charity and find out if the company is a real non-profit.
- Ask if the company offers loans. Lending companies are usually not non-profit.
A typical non-profit agency will only offer debt counseling, credit counseling, debt management and debt consolidation services.
Check accreditations of your debt consolidation company
Your company should have a license of operation from the state government. However, laws in Maryland and Florida do not require debt counseling agencies to hold licenses. If the company that you have shortlisted is legitimate, you will be able to find it –
- In the NFCC directory
- In the FCAA directory
Firms in these databases have to abide by government rules and follow best practices. Also, do not forget to check what the Better Business Bureau or BBB is saying about the company’s services.
Ask your debt consolidation company about their fees upfront
A reputable debt counseling and debt consolidation agency is always transparent about their charges. Though you will be working with a non-profit, do not assume that there are no fees to pay. Many private debt consolidation companies do not charge a fee for the consolidation of loans, but the borrowed sum comes with an origination fee.
Most reputed private agencies and even a few non-profits offer free first counseling to the clients. It provides you a deeper insight into the reasons for your weak finances. Debt counseling and credit counseling is beneficial for everyone, but opting for them does not make taking a consolidation loan compulsory.
What will you need for debt consolidation counseling?
When you go in for your first counseling session, you will need to carry your rogue account details, bills, and credit cards. Also, take your bank statements. It will help the counselor to understand how much you are spending each month and how much cost cutting is feasible. Do not forget to include your partner in the process.
How to make the most of debt consolidation?
Debt consolidation is only a strategy and NOT a solution. You cannot breathe a sigh of relief and sit back browsing e-commerce sites once the loan comes through. Here’s what you can do to make the situation better –
Monitor your expenses
Several mobile applications will help you track your expenditures. Some of them link all your accounts and cards. Even when you spend through PayPal or buy gas on your credit card, they will give you a cohesive amount of monthly or weekly expense. Some of these accounts can also show comparisons between your monthly payments before and after consolidation. You can measure the differences in the form of graphs. You can also try the old-school way of tracking your expenses on a spreadsheet. Several standardized sheets have helped people track costs for over six months at a time.
Create a good budget
Here, your credit counselor can help you prioritize your expenses. Your monthly budget should include everything from the loan payments and bill payments to movie and popcorn expenses. Using a spreadsheet module often helps borrowers keep track of their budget. Stick to the budget, and in case of a lapse, state the reason. Observe the new budget for a month, then make changes as per your best judgment or after consulting your debt counselor.
The previous two steps are finally going to help you make a successful debt management plan. You need to understand that your debt management plan is a part of your budget. Therefore, if you cannot pay the installments regularly, the consolidation plan will not work for you. So, talk to the consolidation company and decide on a monthly payment amount only after you have tested your monthly budget and monitored your expenses for a while. Upon lapse of payment, your loan agency can sue you or pursue unpleasant collection efforts.
Debt consolidation is not a magic spell that makes all the monetary problems go away forever. It works like a band-aid, you need to put in the effort to heal your finances and emerge scathe-free in the future.