Debt consolidation bad credit is one of the options borrowers look in to when they start their financial management plan.  They want to be free from debt and prosper and succeed in the area of finances.  However, it takes more than a debt consolidation loan for your plan to succeed.

Here are tips to effectively manage your finances to repay your debts and to meet your daily needs:

Is debt consolidation right for you?

What ideas do you have about consolidating debts? Do you consider it as a way of getting away with debts or as a tool to help you manage your finances wisely?  If you think you can avoid debts and start new ones, then you got it all wrong. Debt consolidation does not erase debts. It simply rolls it into one manageable debt, with new terms and conditions, new monthly repayment schedule and new payment amount.

The truth is that debt consolidation takes discipline to work. A borrower wears many hats—that of a debtor and a finance manager. Take a self-employed borrower, for example. He may be spending more than $3000 a month for his various loans in the past, but now he has to pay only $2800 a month. Still, he is a debtor who has to pay his dues. The only difference is that he is now paying less and with only one lender. It may seem that he just makes a living and paying his obligations, but he’s also responsible for his budget so he can meet his daily needs, the costs of running his business and managing his debts. He is his own finance manager and he is still ultimately responsible for the results of debt consolidation. In the end, his credit standing depends on his financial decisions.

How much money do I need to repay my debts?

Without the right amount of financing, you can’t afford to repay multiple debts with varying interest rates, with your limited income. It is important to dive in deeper into your financial situation to know how much money you will need to pay your current obligations.

First, you need to determine the total amount of debts you owe. How much money will it take to cover your credit card debts, consumer loans, utility bills, mortgage loan and so on?

Make a list of every debt you have for the last 12 months. Some will be ongoing costs, such as gas, electricity and water, and rent payments. Others will be one-time instalment loans, such as a short-term loan.

After you’ve made a list, decide whether you can repay the debt without getting another loan, or if it is impossible for you to do so. Cut the loans that you can repay today from the list. You can always pay them later when you have extra money to pay already. A good example is a $200 you owe from a friend or a gym membership fee in your favorite gym.

Finally, next to the huge and high-interest debts, write down whether each interest is fixed or variable. Fixed means that the interest won’t change in the foreseeable future, and variable means the interest will be greater in some months and lesser in others.

How good is your personal credit?

Many people do not realise that loan approval is closely tied to personal credit rating. Without an excellent credit score, lenders will look for other ways to determine whether or not to let you borrow money. Requesting for your credit file from the major credit reporting companies in the country is the first step to improving your credit and increasing your chances of being approved for a debt consolidation loan.  Also, realise that many borrowers are turned down the first time they apply for a loan simply because there are many inaccurate information listed in their credit file that ultimately lowered their scores.

Lenders look into your personal credit history to determine whether or not you have paid your loans responsibly and on time. They will run a credit check, so it’s important to review your report even before you send your application. So, when you finally receive copies of your credit report, it is important to review them to make sure they are accurate. Look for credit report blunders that you can still correct. For example, if there are accounts which do not belong to you, or reports of overdue debts that you have already settled, you can dispute them.

Simply send a dispute letter to the credit reporting companies and they will update it, the moment they found out that your claim is valid. However, there are errors that need time to be fixed. You need skills to fix this, or at least a credit repair tool to help you go through the credit repair process successfully.