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Debt Consolidation: Five Steps Toward Success

Created: On December 15, 2009 @ 5:37 pm In

Struggling under too much debt? When a burden is too big, it can help to address it in sections. The following steps can help you analyze and prioritize your debt. Once you’ve done that, you are in a position to decide how to handle [1] debt consolidation, or if other options may better serve your needs.

  • Understand what kind of debt you have, and what it costs: Make a list of all of your unsecured debt including credit cards, personal loans, and student loans. Pay close attention to the annual percentage rate for each account. The APR is the amount of all finance charges related to each account expressed as an annual percentage of the account balance. Interest rates are part of the APR, which also includes late fees, membership fees, over-limit fees, and any other charges.
  • Develop a cash-based budget: You need to know exactly what’s coming in each month and how much you’re spending. This can be a painful process that’s easy to avoid, but not having a cash-based budget is the main cause of carrying debt. Running short between pay days leads to using pay day loans, charging essential items on credit cards, or borrowing from family and friends.
  • Move forward based on your new budget: If you find that you must pay out more than you earn each month, you need to increase your income or decrease your expenses. If you are unable to eliminate enough expenses or cannot generate more income, [2] credit counseling services can help you establish a budget and manage debt repayment through a [3] debt consolidation plan┬ánegotiated and approved by your creditors. These plans can include reduction or waivers of fees and interest charges.
  • Focus on high APR accounts first: Make a list of accounts from highest APR to lowest. Plan on paying off the highest APR first, then the next highest APR and so on. If you have one or more small balances that can be paid off in one or two installments, go ahead and eliminate those, and then concentrate on your highest APR accounts. Why? The higher the APR, the more a particular debt is costing. Typically, the highest APR debts include pay day loans, pay day advances, pawn loans, and credit card debt.
  • Don’t forget personal loans: Although these may not be included in a formal debt consolidation/repayment plan, please do include them in your budget. Repaying family members, friends, and others who’ve lent you money is an essential part of your financial recovery plan.

Whether getting out of debt is a New Year resolution or part of a financial improvement plan, using these steps can help you achieve your goal of financial security.

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URL to article: http://www.debthelp.com/blog/2009/12/15/debt-consolidation-five-steps-toward-success/

URLs in this post:
[1] debt consolidation: http://www.debthelp.com/debt-consolidation/credit-counseling.html
[2] credit counseling services: http://www.nfcc.org/CreditCounseling/counseling_01.cfm
[3] debt consolidation plan: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre38.shtm