Do it yourself: Debt consolidation, Settlement and Management
One of the best ways to get out of debt is to do it yourself. If you can analyze your financial situation, you'll have better control over your money while enjoying a debt-free life. This article shows you how to fix your debt problems without any professional help. All you need to do is to follow these do-it-yourself steps to debt settlement, consolidation, management, deal with collection agencies, credit repair and bankruptcy.
- Do it yourself debt settlement
- Do it yourself debt consolidation
- Do it yourself debt management
- Do it yourself steps to deal with a collection agency
- Do it yourself steps to credit repair
- Do it yourself bankruptcy
If you're unable to make the minimum payments on your bills due to a sudden financial hardship, debt settlement may be the right choice for you. It's worth considering when the only other way out of debt is to file bankruptcy. This will help reduce your outstanding balance.
Usually the debts you should settle first are those having the highest interest rates. Settling these bills makes a lot of difference to your monthly budget. Check out the do it yourself steps to debt settlement and learn how you can negotiate with your creditors.
- Compile the facts: Conduct a thorough analysis of your income, expenses and debts. You'll need these facts in order to convince creditors that you can't make full payments.
- Decide your repayment strategy: Find out how much you can pay your creditors after getting hold of the financial facts. Start saving money.
- Start negotiations: Contact your creditors to start the negotiation process. Reveal the facts and make a settlement offer.
- Make a counter offer: In all likelihood, creditors are going to reject your first offer. They may make a counter offer. Be patient and negotiate till a settlement agreement is reached.
- Get a written agreement: Ask your creditors to send you a letter wherein the payoff strategy will be clearly written.
- Hand over the money: Pay the amount on the date mentioned in the settlement agreement.
- Calculate how much you saved: Compute the total amount forgiven by the creditors for you've to pay tax on it.
- Scan through your credit report: Check the account status to find out if it has been updated properly. Watch video and check out the steps to settle debts in details.
If you're looking to reduce the interest you pay to creditors, debt consolidation is the smart choice. Here, you negotiate with your creditors to reduce the interest rates on your debts. Follow these steps to do-it-yourself consolidation below.
- Priority debts: Prepare a list of your debts with the names of your creditors and arrange them in the order of priority.
- Calculate Affordability: Make a list of your income including wages and state benefits. Then calculate how much you can afford to pay per month on all your bills.
- How to contact creditors: Decide who to pay first and make sure those creditors still hold the debt or if they have sold your debt to a collection agency (CA). Find out how to contact creditors/CAs here.
- Debt validation: If your credit account has been turned over to a collection agency, you should ask them to validate the debt before you start paying. Use a debt validation letter to send your request.
- Negotiate with creditors/CAs: You need to negotiate with your creditors/CAs to lower your interest rates and reduce your payments on your high interest debts. Make sure your total monthly payment doesn't exceed what you can afford and negotiate to waive off any late fees. Use one of the sample letters available here in order to negotiate with the creditors/CAs.
- How to consolidate credit cards: If you have multiple credit cards with small balances, you can consolidate them with a balance transfer. This is done by transferring balances on other cards to one having a low or 0% interest rate. So you make a single payment instead of multiple payments and pay much less in interest.
- Prior to making a balance transfer, look at the terms and see if it has a reasonable introductory period. If the introductory period is quite long, you'll have enough time to pay off the entire balance at the introductory rate. Also, check for any balance transfer fees that your creditor might charge. Avoid canceling any credit cards or applying for new cards. Know how credit card consolidation can work for you.
If you fail to manage your bills along with your daily expenses, it's time to organize your finances. This can be done by yourself using the Snowball Method of debt repayment. Here are some steps you can follow to get out of debt:
- Find out how much you owe on your debts.
- Prepare a list of your income from all sources.
- Use the Unsecured Loan Calculator to find out the total outstanding balance on your unsecured loans.
- Develop a monthly budget to keep track of your expenses. Use the budget worksheet and check out these budgeting tips.
- Find out how much you can pay each month on your bills.
- Decide which account you'll pay off first. Choose the one with the highest interest rate or which has the lowest balance.
- Pay more than the minimum payment on the first debt you've chosen to pay off.
- While you pay on the first debt, keep paying the minimum on the others.
- When the first account is paid off, repeat steps 6-9 until all your bills have been paid.
If you're not comfortable planning a budget on your own, you can get help from a credit counseling agency. A certified credit counselor will develop a realistic budget based on your financial situation to ensure you can pay off bills and improve your financial situation. To find a credit counselor, contact an organization such as AADMO and AICCA.
You'll have to deal with a debt collection agency when your account is assigned or sold off to them. Debt collectors will try to retrieve funds on the delinquent accounts. They may even seek legal help in order to get money from you. So, it's in your best interest to deal with them through the following steps and clear your overdue debt.
- Scan your credit report: Check your credit report and find out if the alleged debt is really listed on it.
- Get acquainted with laws: Be familiar with the debt collection laws so that you can take legal steps in the event of harassment.
- Ask for information: Ask the collector about his/her name and detailed information of the collection agency politely.
- Keep a record of the conversation: Note down the key points of the conversation with the debt collector. In some states, you can even record the entire conversation.
- Send a validation letter: Send a letter to the collection agency and ask them to validate the debt.
- Send a cease and desist letter: You can send a letter to cease all kinds of communication when (a) debt is not validated (b) debt has crossed the SOL period.
- Initiate the negotiation process: Inform politely but firmly about the amount you can pay on the debt. Negotiate with the collector to reduce the payable amount.
- Draw up a written agreement: Ask the collector to send you a written agreement. Inform that you'll not pay anything without getting the written agreement.
- Pay off the debt: Send payments via money order to the debt collector as per the repayment plan. Don't reveal your bank account details to the debt collector. Get more information on how to deal with debt a collectors.
Blemishes on your credit report can make it difficult for you to qualify for a loan or a credit card. So, you need to keep your credit report clean by all means. Have a look at the following steps you need to take to make yourself credit worthy.
- Be familiar with your report: Know about the factors that actually have created blotches on your credit report.
- Clean and polish your report: Report to the credit bureau if there is any typing error or inaccurate information on your credit report. Ask them to remove the inaccurate information.
- Contact your creditors: You can even contact your creditors and ask them to rectify any mistake done on their part.
- Keep your accounts current: Create a prudent spending plan so that you can make timely payments and avoid delinquent debts.
- Take care of the collection accounts: Delinquent collection accounts hurt your credit score. If you don't have sufficient amount, then settle the debt with the collection agency.
- Retain active credit accounts: Cancel the inactive accounts. Maintain the old accounts with long payment history.
- Develop a stable credit file: Ask your creditors to give the proper credit history to the credit reporting agencies.
- Open a secured credit card account: Use a secured credit card to establish a solid payment history on your credit report. Watch video on the DIY credit repair steps.
You can file bankruptcy to discharge your debts without the help from an attorney. However, since bankruptcy is a complex legal process and it involves a lot of paperwork, so it is recommended to consult an attorney.
If you're determined to file bankruptcy on your own, then here are a few steps you need to take:
- Decide if you need to file bankruptcy: Find out if you really can't pay off debts through other relief options since bankruptcy hurts your credit score.
- Complete a financial management course: Complete a credit counseling course and obtain a certificate 6 months before filing bankruptcy.
- Think about the type of bankruptcy: Go through the means test and determine the type of bankruptcy you need to file.
- Arrange your documents: Keep all the documents ready and submit them while filing bankruptcy.
- Submit your petition: Submit your bankruptcy petition. Complete the paperwork and submit them to the bankruptcy trustee.
- Attend the 341 meeting: Disclose all the facts and answer all the questions of creditors. Know when you should file bankruptcy on your own.
Do you need professional help?
If you don't feel comfortable negotiating with your creditors, you can seek professional help. Enroll in a free counseling session with a debt consultant from our community. The consultant will help you decide whether to choose debt consolidation program or go for a settlement.
Alternatively, if you have contacted a credit counseling agency for debt help, you may be offered a debt management plan to help you pay off your bills faster.