Resources for people with Bad Credit & information on Credit Reports, Debt Consolidation, Auto Loans, Mortgages, & more.

Debt Consolidation Resource Guide

What is Debt Consolidation?

Basically, debt consolidation is a strategy used to manage debt problems. Instead of paying off several separate bills every month, you consolidate all of your debts with one financial institution that arranges one lower monthly payment extended over a period of time. Debt consolidation is most effective when you include all of your debts together.

You and the financial institution or debt consolidator work together to come up with a payment plan based upon your income and living expenses. They will also negotiate a payment plan for your outstanding debts with your creditors. You will then send a fixed amount monthly to the financial institution and they will pay your creditors for you.

Make sure you are using a reputable consolidator

If you are working with a reputable consolidator, they will work with you to manage a budget that can help avoid these problems in the future. Your debt consolidator should advise you on how to prevent debt as well as how to get out of it.

There is no such thing as a quick fix to a serious budget problem. If a consolidator is claiming this, beware. If they just offer services such as secured cards or credit repair, they are more like long term budget plans and not quick fixes like they claim.

Try it yourself before turning to a debt consolidator

If possible, you may want to try managing your debts yourself before turning to a debt consolidator. You should contact your creditors and let them know you would like to work out a payment plan with them and pay them regularly. They would rather hear this than receive nothing at all.

Plan a budget for the future to avoid future debt.

An example monthly budget consisting of after tax income for a family of four would be:

Housing - mortgage or rent payments 25%-30% of monthly income

Food - groceries, household items, meals out 15%-20% of monthly income

Transportation - car maintenance and insurance, public transportation 10%-15% of monthly income

Household - utilities, minor repairs 10% of monthly income

Clothing 5% of monthly income

Healthcare - costs not covered by insurance 5% of monthly income

Personal - personal care, recreation 5% of monthly income

Insurance - personal property, life health 5% of monthly income

Debt - credit cards, car and personal loans, etc. 15%-20% of monthly income

Savings - 5-10% of monthly income

Of course every family is different, you may have expenses that are different than above. You should only have to reevaluate your budget if your expenses dramatically exceed the percentages above.