How to Create a Debt Consolidation Plan

A debt consolidation plan allows individuals to determine the best way to pay down debt. There are many methods to consolidation but all of them involve a plan. The plan needs to outline what your debt is and how it will be paid down. For those considering a debt consolidation loan, it is important to create a plan to avoid getting further into debt. A debt consolidation plan can help you to start a financially successful life.

Instructions

1

Determine the amount of debt you have by making a list of all debts, excluding any mortgage payments, in order from the debt with the highest interest rate to the lowest interest rate. Do not forget debts such as vehicles, student loans, store accounts, tax liens and credit card debt. Second mortgages or home equity loans should not be listed.

2

Calculate the monthly payments made on each of your debts, based on the required minimum payment on each. The debt consolidation plan may help you to reduce the amount of monthly payment you are making, depending on the type of consolidation loan obtained.

3

Shop for the best consolidation loan available to you, which could be a secured loan (such as a home equity loan) or an unsecured loan (such as a personal loan.) Look for the lowest rate line of credit available that offers enough of a credit limit to cover the total debt owed.

4

Apply for the loan after telling lenders your desire to consolidate pre-existing debt with this new loan. Because you will pay off pre-existing debt with the loan, the lender may look more favorably on your application because of the reduction in debt.

5

Put in place a budget that outlines all monthly expenses in total. Using this budget, keep all credit spending to the lowest possible amount, which will ensure that no further debt is accumulated. Use a cash only lifestyle until the debt is paid off in full.

6

Continue to pay off the debt consolidation loan. For the debt consolidation plan to be successful, individuals need a firm commitment to enable them to improve their credit and build financial wealth.