4 Tactics for Sticking to a Debt Repay Plan

Some people will tell you that consolidation companies are just sharks waiting to take advantage of your financial situation and charge you to pay off your own debt.  While I’m sure some companies are likely out to price gouge their customers, choosing a good consolidation company (or negotiating a debt repay plan on your own) can be a huge boon to your financial life — it helped me pay off $15,000 in student loans and credit card debt within two years.  There is one caveat, however; you absolutely must not miss a monthly payment.

The consequences of missing a payment once you’ve set up any sort of payment plan, consolidation or no consolidation, are many and far outweigh the benefits of using such a program.  Unfortunately, for many young adults with a part-time job or a job that works off of tips, these plans can be tricky, given that your monthly income likely fluctuates.  But working with a company that is willing to negotiate a debt repayment plan can help you lower your monthly payments and save a ton of money in interest in the long run.  So, how do you make sure you stay on the track to total debt freedom?  You set yourself up for success by making your payment plan as sticky as possible.  This is how:

1.  Automate Payments

Have your payment set up with your bank so that it goes through the day after you get paid.  Doing this will make sure that you never even see that money and you’ll get used to living off the remainder of your paycheck.  An additional bonus?  You’ll likely forget you’re even making payments, and when you check your balance on an afterthought, you’ll be pleasantly surprised at how quickly it’s decreasing.

2.  Stop Card Activity

If you’re on a repayment plan, there’s a good chance that you’ve probably maxed out your spending limit.  But if you haven’t, lock your card in a safe place, and make sure you don’t carry it out with you to deter adding to your spending limit and continuing the vicious cycle of accruing more charges on top of your current balance.

3.  Set up a Depreciation Calendar

One of the best ways to keep yourself motivated to pay off a high balance is to watch your balance whittle away as you make steady payments.  Printing out a calendar with the dates of your automated payments is an excellent way to visualize the balance getting smaller.  On the date of each scheduled payment, pen in the new balance.  This will provide a visual aid of your declining debt, and will keep the motivation high to continue snowballing the balance.

4.  Check in with Creditors Regularly

Setting up a recurring date to speak with a consolidation counselor or a debt repayment plan agent will help hold you accountable for your payments.  Speaking with a counselor on the last day of every month is a great way to review your progress and goals with someone in an position of authority, making it more difficult to miss a payment since you’ll have to answer to a real live human being down the road — not just some automaton spitting out a quick warning.

I’m Debt Free!

I’m not one to toot my own horn, but I will today because, frankly, I deserve it.  Today I became a card-carrying member of the Debt-Free club.  This beautiful day follows an intense two year period of handing over half of my salary towards debt repay, and I am tickled pink to have finally gotten to the point where I don’t have to throw away my paycheck on crap that I purchased eight years ago.  Read more

Six Benefits of Bill Consolidation

Many people think bill consolidation is synonymous with financial defeat – happening when you aren’t able to pony up the cash for your monthly credit card statement. But the truth is, bill consolidation can be the catalyst that propels you to really tackle that growing pile of debt. Bill consolidation has been a huge boon to my financial wellbeing, and it can do the same for you. Keep on reading for six reasons why debt consolidation can make a huge difference in your finances.

1. Easier Maintenance of Payments

Trying to keep up with a myriad of bills can be a daunting – even overwhelming – task. You’ve got various due dates that may or may not correspond to your pay schedule. Take all those bills and consolidate, and you have a single bill with a single due date to remember each month. If you’re an auto pay fan, it reduces the hassle of overseeing multiple debits to ensure that you’re not overcharged. Managing one payment: easy. Managing eight: not so much.

2. Lower Interest Rates (more money towards principle)

Ever tried to haggle a better interest rate from a credit card or student loan lender? Not an easy feat. Consolidation companies, however, have a little more pull when it comes to negotiating better interest and fees. Creditors understand that when a consolidation company is involved, it’s a sign that their client is serious about paying off their debt. This gives them a bit of leverage to work out cheaper interest rates from you since they know for certain that they’ll be getting a payment in each month. In return, this lower interest means that more money is going towards paying off the principle (the original debt) which will knock down the debt more quickly.

3. Cheaper Monthly Payments

Since a good chunk of the total bill is cut down once you lower the interest rates, minimum payments go a longer way. For example, I consolidated three years ago and started out with around 15K in debt. My monthly payments were around $500, but Consolidated Credit was able to get one of my credit cards down from a 21% interest rate to an 11% interest rate (as long as I agreed to freeze the account). Multiply these savings by three or four creditors, and you have a significant monthly savings. Once I consolidated, my monthly bill went down to $350.

4. Peace of Mind

Creditors’ phone calls are no fun. If you’re ever been more than 120 days past due on a bill, you know that creditor phone calls can become a daily occurrence. There is nothing like the stress of someone calling multiple times a day asking you for money that you don’t have. Especially if it’s gone to collections and they demand the payment in full. In a relatively short amount of time, consolidating companies can make those call go away.

5. Improved Credit Rating

No one knows exactly what the algorithm is that’s used to determine your credit score, but one thing we do know is that paying off debt increases your debt to credit ratio. Your debt to credit ratio is the amount of money you owe in comparison to the amount of credit you have. Decreasing your debts puts a bigger gap in between what you owe and what the amount of credit you’ve been approved. This makes you more stable looking to credit companies, and in turn, increases your credit score.

6. Support Network

Surprisingly enough, a debt consolidation company can provide a network of support for debt repayment. I found that when I called the consolidation company each month to update them on the status of each bill, they were always really encouraging and mailed out budget advice and tips on a monthly newsletter. A network is crucial to staying on track. There are lots of distractions to keep you from your debt repayment goal, but others in your situation and people who’ve successfully gotten out of debt can provide the right advice at the right time.

Personal Story: Two Years to a Debt-Free Existence

In a new monthly feature we’re going to call “Personal Story”, we’re going to publish our own and reader’s personal finance stories. We’ll focus on how we got into debt, how we’ve worked (or working) our way out of it, and how we keep ourselves on track financially. The hope is that we can all get ideas and encouragement from each other to find ways to live within our means, stick to budgets, and save for a rainy day. It’s hard to stick by these plans by yourself, so we want to try to build a community that encourages these principles. I’m going to kick things off by talking about my own debt story.

I moved to NYC about four years ago, straight out of college. I had a nice little bundle of student loan debt, although nothing compared to some of my friends who owed $30-$40K in student loans, and a couple of low-balance credit cards. All in all, I was in pretty good financial shape. I was bunking with a friend of a friend who lived in Washington Heights (Manhattan). It wasn’t the greatest setup since I was crashing on a living room sofa, but I ended up staying there for about four months until I got settled in. Around the time that I was planning to move out, my friend found out that she was eligible to purchase a studio apartment in one of those rare, somewhat mythological middle class housing projects. Since she had to move quickly to take advantage of it, I was left with the apartment if I wanted it. Needless to say, I was pretty psyched about having my own place, especially considering that it came without all the hassles of a broker’s fee and moving expenses. The major downfall was that I had to sign a new lease and the previous $875/month shot up to around $1,100/month. For a lot of people in New York, this would still be considered a bargain. But since I was fresh out of school with no real work experience my full-time job was bringing in around $26K a year.

Like most people fresh to New York City, I had conjured up my ideas on what my life in the big apple would be like. It was primarily based on what I saw on television and was a far cry from the way that I could even remotely afford to live. In my attempt to stake out the perfect little urban utopia I had imagined for myself, I decided to keep the apartment – even though it was well over the amount I could afford to pay. I got my father to co-sign for a personal loan which I used to furnish the new place and pad my checking account for a little while. I lived decently for the first six months or so, somehow managing to still have a few dollars left over to occasionally grab drinks and eat out with friends. But like all free money, my loan finally ran out and my lack of cash started to catch up to me. My answer to the problem was credit cards. I began funding my burgeoning social life with them and eventually took to paying all of my monthly utilities with credit for well over a year.

Since I was using my entire paycheck plus some to pay my rent and my credit cards to pay my utilities, I had little cash left over to buy anything else including food. I reverted back to my college days, buying Ramen by the boxes and filling up on cheap bagels. I was fine with this because food was something I was willing to scrimp on in order to have some cash on hand to play with. After about a year, I reached a point where I couldn’t afford to keep living in the one bedroom by myself, so I found a room for rent in the city and moved into a tiny bedroom on the Upper West Side. I stayed there for a few months and then continued to hop around from place to place.

Fast forward to a few years later, I found myself at a new job with a better title with a higher salary. And not even two months after securing the job, I had found a new apartment to move into – a two bedroom that I shared with a roommate for $2,100. My share was $1,050. This move was basically a reaffirmation to make me feel like I had “made it” in the big city – even though it was taking a nice, fat chunk of my earnings away each month. This kept on for about a year and I continued to struggle to pay my bills. By this time, my credit cards were completely maxed out and I was being moderately harassed by creditors

My moment of realization came two years ago when I was still living in the overpriced Lower East Side place. After buying a laptop on credit and not making payments on it for well over a year, I was threatened with a law suit for negligence to pay. After many a phone call with a shark lawyer who represented the company, I started rethinking my financial situation. I sat down with a close friend and hashed out a budget. I joined Consolidated Credit and let them take over sorting through my debts, and this was probably the single most effective thing I have ever done in managing my finances. They did a fantastic job at getting creditors off my back and negotiating fair interest rates. Realizing that I couldn’t possibly keep paying a huge portion of my rent for a bedroom in Manhattan, I decided to downgrade my living arrangements. I found a nice room in Brooklyn for $600 a month in a much larger space.

Fast forward a few more years, I’m still here, and in November I will be completely debt free. It would have never happened without me making some drastic changes to my lifestyle. Once I started to focus on myself and what I needed to do to be able to live well, I was able to stop focusing on trying to impress other people and get myself on sound positive financial footing.

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Submit your own “Personal Story” to lauren@lifestylermag.com. If your story is chosen for our monthly feature, you will receive a $30 Amazon gift card and a by-line.