DIY Debt Relief
Strategize for Your Own Success
Ways to Do It Yourself .
Strict Budgeting Can Work
Cut up your credit cards or put them away. If you don’t have access to your credit cards, you will be less tempted to make impulse purchases when you don’t have the cash on hand. As you continue to pay down cards without adding to the balance every month, you will dig yourself out. Hide your cards. Live on cash. Act like your credit cards don’t exist and then you can be free from them.
You are getting charged interest on your credit cards every single day you carry a balance. When you send in more than one payment a month, you reduce the balance that your Daily Rate is figured on. That, in turn, saves you money every day on the daily rate charged. Then you will be able to shrink your balance much more quickly.
First Things First
Focus on paying off the credit card with the highest interest rate first. Then pay off the second card and third in the same way.
Snowball Effect
As you make progress you will be encouraged to keep going to paying down your debt. This has been called the Snowball Effect. A little savings grows bigger and bigger with each card you pay off.
Put your money where your mouth is.
Create a Budget & Stick To It .
Create a budget and stick to it. If you can develop a budget that gives you extra money each month, then use that to pay down your credit cards. There is little doubt it’s the most expensive money you use. So, saving money and investing in yourself by paying off your credit card bills will create a lifelong skill of living on a budget, paying off your credit card bills and using extra dollars for building savings.
Calculate Your Net Income
The foundation of an effective budget is your net income. That’s your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance. Focusing on your total salary instead of net income could lead to overspending because you’ll think you have more available money than you do. If you’re a freelancer, gig worker, contractor or are self-employed, make sure to keep detailed notes of your contracts and pay in order to help manage irregular income.
Track Your Spending
Once you know how much money you have coming in, the next step is to figure out where it’s going. Tracking and categorizing your expenses can help you determine what you are spending the most money on and where it might be easiest to save.
Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses—those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.
Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses—those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.
Set Realistic Goals
Before you start sifting through the information you’ve tracked, make a list of your short- and long-term financial goals. Short-term goals should take around one to three years to achieve and might include things like setting up an emergency fund or paying down credit card debt. Long-term goals, such as saving for retirement or your child’s education, may take decades to reach. Remember, your goals don’t have to be set in stone, but identifying them can help motivate you to stick to your budget. For example, it may be easier to cut spending if you know you’re saving for a vacation.
Make A Plan
This is where everything comes together: What you’re actually spending vs. what you want to spend. Use the variable and fixed expenses you compiled to get a sense of what you’ll spend in the coming months. Then compare that to your net income and priorities. Consider setting specific—and realistic—spending limits for each category of expenses.
You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when you’re looking for ways to redirect money to your financial goals.
You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when you’re looking for ways to redirect money to your financial goals.
Adjust Your Spending
Now that you’ve documented your income and spending, you can make any necessary adjustments so that you don’t overspend and have money to put toward your goals. Look toward your “wants” as the first area for cuts. Can you skip movie night in favor of a movie at home? If you’ve already adjusted your spending on wants, take a closer look at your spending on monthly payments. On close inspection a “need” may just be a “hard to part with.”
If the numbers still aren’t adding up, look at adjusting your fixed expenses. Could you, for instance, save more by shopping around for a better rate on auto or homeowners insurance? Such decisions come with big trade-offs, so make sure you carefully weigh your options.
If the numbers still aren’t adding up, look at adjusting your fixed expenses. Could you, for instance, save more by shopping around for a better rate on auto or homeowners insurance? Such decisions come with big trade-offs, so make sure you carefully weigh your options.
IMPORTANT
Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track. Few elements of your budget are set in stone: You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason, get into the habit of regularly checking in with your budget following the steps above.
There's upsides and downsides. Let's take a look.
Pros and Cons of DIY Debt Relief
Positive Impacts
- Improve Financial Literacy
- Maintain Current Accounts
- Creates Financial Plan
- Audits Personal Spending
- Improved Spending Health
Potential Cons
- No Immediate Relief
- Missed Payments Ruin Progress
- Interest Rates Don't Improve
- Fees and Interest Accumulate
- Credit Health May Suffer
For Whom Does DIY Debt Relief Work Best?
Getting yourself out of debt the “old-fashioned” way is no easy feat. Often time circumstances that lead up to your financial debt are beyond your control, and other times they’re due to decisions that weren’t financially responsible. Regardless of the culprit, the only thing you are in control of is your spending and fiscal responsibility moving forward. Is it possible? Absolutely. But the work must be put in every day to make it feasible.
What are you waiting for?