Independent Debt Consolidation

If you're looking to consolidate your debts, don't forget the do-it-yourself method. It can be a less painful path to financial freedom.

The accumulation of unsecured credit card debt can happen so quickly, you may not know what hit you. With home equity loans drying up, getting rid of debt isn't as easy as it used to be. When considering your choices, look at settling your debts yourself. It's possible to settle them for 50 to 60 cents on the dollar.

Don't leave it to pros

Professional debt management companies abound. Many offer promises that they can't keep, and some are even illegal. If a company claims it will wipe your credit slate clean, for example, run the other way. The only way to improve your credit report is by paying your bills on time for several months.

Other companies charge large fees up front that only apply to the interest you owe, leaving you liable for the principal. Most of these companies negotiate the same types of settlements on your debts that you could arrange yourself, depending on where you are in the collection process.

The benefits of settling your debts yourself include:

• Saving costly up front or monthly fees.
• Control of what gets paid and when.
• The power to negotiate settlement for the entire debt that's up to 50 to 60 percent less than the total owed.

Debt consolidation steps

First, get an accurate picture of your total debt and how much you can afford to pay each creditor in a settlement. The next step is to raise the money needed for the settlement. Most people typically use tax refunds, proceeds from the selling of a car or home, or borrowing funds from a relative, or withdrawing from a 401(k).

You'll need a lot of patience. As your creditors call, tell each representative that you can't afford to pay your debt, and offer to negotiate a settlement. Emphasize that if the company doesn't take the settlement amount, it could end up with nothing. Keep an accurate record of every call. If you're early in the collection process, be prepared to hear a lot of "no's." Experts say that creditors typically wait until the amount due is about to be charged off the company's books before agreeing to a settlement, which can sometimes be between six to 18 months from the original due date, depending on the creditor. At that point, the creditor is likely to be willing to settle for an amount less than the total owed.

Always a downside

The "down" side of settling your debts yourself is that it will negatively impact your credit report. But so would using a professional debt management firm, or declaring bankruptcy. It often takes a lot of work and many phone calls to reach a settlement, and there's no guarantee that it will be a good one.

When weighing other means of consolidating your debts, handling it yourself may be the smart choice for you.