A lot of people are looking for ways to consolidate multiple debts. According to reports, Millennials have an average of $42,000 debt and it is a mix of student loans and credit card debts. Both of these can bring a lot of stress into the household and you need to make sure that you will act on it before it destroys your family. Not only that, dealing with the high-interest credit card debts is necessary if you want to be able to buy your own house in the future. If you are looking for a more stable and secure financial situation, you need to do something about your current debts. To be specific, you need to keep the high-interest credit card debts from compromising your financial growth.
If you want to consolidate multiple debts, you usually think about getting a loan to help you do it. But if you have a low credit score, this is not the most ideal debt solution. But is it possible to consolidate your debts without borrowing a loan?
The answer to that is yes!
You can use debt management to help get yourself out of debt. But how does this debt solution work?
How debt management consolidate multiple debts
Although a debt consolidation loan can save your finances from being totally destroyed by debt, it is not always the perfect solution. There are times when it is better to consolidate multiple debts by using debt management.
This debt consolidation strategy involves a credit counselor who will take a look at your credit and financial situation. They will advise you if you can afford to use debt management – since this will not reduce your balance like debt settlement can. If you qualify, they will create a debt management plan (DMP) that is suited for your financial capabilities. You need to work closely with them because it is important for you to commit to the DMP. If you cannot afford the monthly payments, you need to speak up so they can adjust it for you.
This plan will be presented to your creditors and lenders. Once they approve, you will have to send your payments through the credit counselor.
Sounds simple enough right?
Before you proceed with debt management, you might want to take a closer look at the two important features that make this strategy a great option to consolidate multiple debts.
Restructured payments through a debt management plan
First of all, this debt solution gives you a restructured repayment plan. This is done through the debt management plan that the credit counselor helped create for you. It will be based on what you can afford. Usually, debt consolidation is done so your monthly payments will not cause too much strain on your budget. Since a DMP is created based on your financial situation, this is your chance to make the monthly payments for affordable.
Single monthly payment coursed through a credit counselor
Another feature that makes this a great option to consolidate multiple debts is that it leaves you with a single monthly payment. Technically, none of your debts are combined. However, it feels like it is consolidated because you only make one payment each month and this is through the credit counselor. The counselor will be in charge of distributing your payments to your multiple creditors and lenders. It is all part of the service that they provide for the debt management program.
In debt consolidation, one of the goals is to get a lower interest rate on the new payment plan. Unfortunately, this is not a guarantee in this debt solution. The credit counselor will try to negotiate for you – but they will never guarantee that the creditors and lenders will agree.
Tips when using debt management when consolidating debt
If you find that it is best to consolidate multiple debts through debt management, you need to understand the key ingredients that will make it work.
Here are tips that you might want to consider if you want to succeed in using this debt solution.
Be truthful with your financial situation
All debt relief programs will not work on you if you are not honest with your financial situation. Although it may be embarrassing, you need to admit if you cannot afford your payments. If you are not truthful about your debt and financial situation, it will affect the debt management plan that the credit counselor will create for you.
If you leave out even a small debt obligation, it can grow into a big responsibility in a matter of months. Interest, fees, and other penalties will add up on top of each other. This will exponentially increase the amount you have to pay. Not to mention that while you are paying down your consolidated debt, your credit score is getting a hit because you are not forgetting to pay one account.
Stick to the debt management plan
When you consolidate multiple debts through debt management, you have to make sure that you can commit to the repayment plan. If not, you need to talk to your credit counselor. It is not just the amount that you have to agree to. You have to ensure that you can meet your due date.
The thing with a debt management plan is that you cannot miss a payment because it will compromise the whole program. This plan was sent to all your creditors and lenders for approval. If they approved, they will expect you to stick to the plan. If you fail to do that, it will forfeit the whole repayment strategy. You will be forced to go back to the original repayment and all the negotiated lower interest rates – if any.
Stay away from more debt
Admittedly, this is easier said than done. When you consolidate multiple debts, you need to make sure also that you do not add to your existing monthly payments. If you do, then you will never get out of debt. You will just keep on adding to it. According to a survey, 37% of respondents admitted that they expect their finances to decline because of increased debt. If you want to improve your financial situation, you need to stop adding debt. At least, do this until after you have completed the debt management plan.