Next Step for People Who Failed at Debt Consolidation Programs

Debt consolidation may have seemed like the answer to your financial problems when you applied for it, but fighting debt with even more debt may have proved you wrong. By making a firm commitment to paying off your debt, you have the ability to dig yourself out for good. However, it's a matter of reorganizing the entire structure of your spending habits to accommodate larger contributions to reducing debt.

Budgeting

Many people fail at debt consolidation because of their inability to reduce spending. Think of your budget as a plan for where your money will go each month. Start off by noting everything you spend money on each day for a week, then multiply your total by 4.3. This new total will give you a good estimate of what you spend monthly on out-of-pocket expenses. Add in your rent or mortgage, utilities and other recurring monthly bills. Then, look objectively at where you're overspending and how you can cut back. The money you save will then be contributed to your debt.

Credit Counseling

As much as 70 percent of those who use debt consolidation end up with the same or more debt within two years, according to a Bankrate article by Jenny McCune. To get to the root of your financial problems, it's important to work with an expert who will assist you in understanding and improving your financial habits, help to create a reasonable budget and provide you with options for paying off your debt, such as a debt management plan.

Debt Management Plan

Only credit counselors have the authority to approve you for a debt management plan. Under a DMP, your counselor contacts your creditors to arrange for lower interest rates or payoff balances for your debt. The counselor formulates a payment plan with a specific end date, generally 48 months or longer from the start date. You then make regular payments to the credit counseling organization each month, which in turn pays your creditors.

Considerations

With the abundance of companies calling themselves credit counselors, it may be difficult to differentiate the legitimate organizations from the frauds. It's important to choose the right credit counselor to avoid paying high fees and scams. The National Foundation for Credit Counseling lists only reputable credit counseling organizations on its website.