Here are some things you can do:
- Start budgeting right away. Examine your spending habits to see where you can cut down on expenses. It may be something as small as a cup of coffee a day or a pack of cigarettes. Acquire a new habit of waiting till the next day before you buy that "to die for" item. Chances are you won't even like it tomorrow and would be having buyer's remorse now had you bought it yesterday!
- Make a list of all your debts so you know how much you owe to whom, the amount overdue on each debt, the dates of future repayment instalments, the interest being charged on each debt, the balance outstanding on each debt and whether it is secured or unsecured. Secured debts are usually non-negotiable as the lender has recourse against the property used as collateral (security). Unsecured debts are more negotiable as the lender is in a vulnerable position and would rather get back a reduced amount than nothing at all.
- Use the savings from budgeting in Step 1 above to pay off secured debts first or to keep the repayment instalments current, then apply any surplus to the highest interest debts or small debts that can be paid off completely.
- Use cash only for all your purchases. Stop buying anything on credit - cut up your credit cards. If you have to put it on your credit card, it means you cannot afford it and if you cannot afford it, you should not buy it. Pure and simple logic!
- Make a list of all your income, expenses, assets and liabilities as you will be asked to furnish this information when you apply for debt consolidation refinancing. When you are prepared with the answers and come across as switched on, you will be looked upon more favorably than someone who has no clue about their finances - this could possibly improve your chances of getting approved.
- Save at least $1000 to put aside as an emergency fund. Look for seldom-used luxury consumer goods on your list of assets. They can be things like expensive stereo equipment, kitchen gadgets, roller blades, ski gear, cameras, designer clothing, etc. When was the last time you used them? Any item that you haven't used for more than six months is probably non-essential. Auction them off on eBay to get some funds in. Note: Make sure there is no finance contract specific to that item still in force, as it would be fraudulent to sell something that you do not own outright. Put the money from the auctions (topped up with money saved from cutting down on expenses, if necessary) into the emergency fund. Channel any leftover money from the auctions towards paying off debts.
- This step is not recommended - do this only if you are unable to save for the emergency fund and have really valid reasons to do so and use it only in an emergency. If you feel it is absolutely necessary to have access to some form of emergency credit, then apply for a new credit card before you start the debt consolidation refinancing process. You will not be able to get credit once you start the debt consolidation refinancing ball rolling. Needing a new outfit for a party is neither a valid reason nor an emergency! A sick child needing immediate medical attention that you cannot get for free may warrant use of the credit card. Even so, you should negotiate terms with the medical center first - after all, they have an obligation to save lives first and foremost.
