In the modernized world of today, it is quite common for individuals and families to experience financial ups and downs in life and find themselves in thousands of dollars of debt. It is a fact that the average US household owes 16.061 in credits and debt than any other type (according to an analysis released by personal finance company Ned Wallet). Many people just ignore their debt problems and hope things get better down the road but unfortunately when you are buried under excessive debt this is rarely the best strategy. However, you have several options when you make the decision to eliminate your debt, like debt consolidation, debt settlement, credit counseling, bankruptcy and DIY (Do It Yourself) debt management plan.

The Do-It-Yourself Debt Management Plan

Do It Yourself (DIY) approach is a free and effective way of reducing your debt, but you need to know how to go about it and it requires a lot of dedication and planning.

1. Evaluate Your Debts

The first important step is to know where you stand before you start as the amount of debt you have and the type of debt you have will impact how you should go about paying your debts. You need to collect all your financial reports and make a list of all your debts. You can either do it on a piece, of paper or make a list of all your debts on a spreadsheet program like Microsoft Excel or free Google Sheets. Your list should include all your debts including debts like personal loans, credit cards, payday loans, auto loans with their interest rates and monthly payments. At this point, you need not include any loans on your mortgage or student loans, but be sure to add any annual fees you have on your credit cards.

2. Review Your Monthly Budget

The next step is to write down your monthly expenses which should not only include utilities and grocery but other such expenses as childcare, insurance, student loan payments etc. Once you have done this, you must calculate how much you have left to pay off your loans and can also consider ways to cut down your expenses so that you can afford to get out of your debts sooner.

3. Begin Negotiations

You could then move on to calling up your creditors and discuss your situation and ask them to lower your interest rates or negotiate a settlement for less than what you owe.

3. Move Forward

There are different ways to go about paying off your debt and moving forward to a debt-free life.

  • You can consider transferring your credit card debts to a new one with lower interest rate or it would be even better if you can qualify for a 0% interest balance transfer cards where you have about 18 months interest-free loan..
  • Debt Stacking or “Avalanche Method”: After calling up your creditors and getting them to lower your amount ,you should order your debts from highest to lowest and figure out how much money is left after paying your minimum payments and start paying the debt with the highest interest rate first. After that is paid off move on to the debt with the next highest interest rate. The idea is that it will prevent from racking up interest uncontrollably and save you money.
  • Snowball method: In debt stacking, you order your debts from highest to lowest but in snowball method you do the opposite and instead of highest you start by paying off the lowest debt you owe first and then move up from there. By this method you will be able to pay a single debt faster and you will be motivated to continue paying off your debts. Both snowball, as well as debt stacking, works if you make the least minimum payments on all your credit cards while paying off one debt at a time.
  • Signature loans: Do you know that you can get a loan by just using your signature? It is true. You have the ability to access all sorts of credit from credit cards to 5-year loans by just signing an application. It is also known as a good faith loan or character loan offered by banks and other financial companies. It is a type of unsecured loan and different from collateralized loans. In a collateralized loan you put up some asset as insurance, whereas in a signature loan your loan is backed up only by your good credit. To secure a signature loan you would have to sign a “promissory note” that means you have promised to back the loan. A signature loan does not have collateral behind it, so the interest rates could be very high. One of the reasons you would be granted this loan is your credit history with a bank or credit union. It could help a small business, but it could be very difficult to obtain one to consolidate your debts.
  • Peer to peer loans: This is a new kind of signature loan which has lower interest rates than a typical no-collateral loan. Peer loans are not issued by banks but are completely run through the internet. They can afford to offer lower interest rates because they do not have to pay for tellers or bank vaults.

Do It Yourself method requires that you provide your creditors with evidence of financial hardship in order to negotiate with them. Some creditors may not be obliged to negotiate with you. So, it requires a lot of patience, strong will and the right temperament to conduct difficult time-consuming negotiations and follow this approach to completion.