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Debt Consolidation Plan - On Being Able to Pay Your Loan Back

When one is constructing a debt consolidation plan, one of the most important and yet commonly overlooked elements to include is how one intends to repay the consolidation loan. A plan that does not provide a comprehensive analysis, including realistic assumptions about income and spending constraints, of debt service is bound to fail and compound the problems that may have initially necessitated the consolidation plan. When one is working with a skilled debt counselor, an in-depth conversation about budgeting should be expected and welcomed.

The purpose of a debt consolidation plan is only partially about how one intends to combine multiple, high interest rate loans into a single, and more manageable loan. The overarching theme of such a plan should be how one intends to improve one’s debt profile - in terms of improving one’s credit score, one’s ability to borrow in the future, but most importantly, how one can manage and eliminate existing debt. Rolling multiple loans that you cannot afford to make payments on into a single loan which you equally cannot afford to make payments on is not a significant improvement. If one’s plan does not involve loans that one is able to afford, the plan is deficient and likely to fail. Because there are a limited number of chances a given individual will have to put a successful plan together, it is of utmost importance to design one’s plan correctly.

In order to ensure that one is able to service the debt consolidation loan, it is necessary to make a realistic and comprehensive budget. After figuring in for everything from costs for other debt service (auto loans, credit card payments, etc.), food cost, medical costs, utilities, and other recurring monthly expenses, one should have a sense of how much he or she can afford to put toward the consolidated loan on a monthly basis. If this number is significantly different from the required number, certain major changes may be needed. If, however, the money available on a monthly basis is close, making some small lifestyle changes will allow you to work your way out of debt.

When meeting with a lender and negotiating loan terms, having a written budget will be helpful. One will know what can be realistically afforded, and the details of the budget (if it is modest) may help one to convince a lender to come to loan terms that are manageable - remember that a lender does not want to write a loan that has little chance of being consistently serviced.

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