Guest Post: Do-It-Yourself Debt Reduction v. Professional Debt Reduction
One of the businesses that is booming right now is that of “credit counseling.” These are professionals who help you with debt reduction through such means as debt consolidation and debt negotiation. The idea is that you can have someone else take all of your debts for you, and roll them into one payment. You pay the professional, and the professional pays your creditors. For some people this works really well. For some, though, do-it-yourself debt reduction is a more desirable choice.
Debt reduction: do-it-yourself
If you are generally an organized person, and you have the discipline necessary, it is possible for you to take care of your debt reduction on your own. But you need a plan that you can stick to. Here are some things you can do to get on track for your do-it-yourself debt reduction:
- Figure out your income and your expenses. Tote up everything you earn and everything you spend. You might track your income and expenses for a couple of months to get a better idea. Figure out where everything is going.
- Decide where you can cut back. Look at what you have left over each month, and decide what you can cut back on. Are there ways to reduce your grocery bill? Can you eat out only once a month instead of once a week? Find out how much “extra” money you have each month.
- List all your debt obligations. Next, armed with the information you have regarding your “extra” money, make a list of all of your loan (this includes credit cards, which are loans) balances and the minimum payments on each.
- Pick a debt and apply your “extra” money to it. Your minimum payments should have been listed in step one to make this really work. Pick a debt on your list. I think starting with the lowest balance is a good way to feel as though you are making solid progress. Pay the minimum payment and then apply 75% of that “extra” money toward the debt on top of the minimum.
- Go on down the list. After you have paid off the first debt on your list, move to the next. Note that your “extra” money now includes what you used to pay on your minimum payment for your first debt. So, if your minimum on the first debt is $50 and you have $100 “extra” each month, you will put $75 toward the debt, on top of the $50. Your total is $125. When the first debt is paid off, take that entire $125 and apply it to your next debt. You can see where this is going. You’ll start paying off your debt faster and faster.
Professional debt reduction
If you don’t think that you can do the do-it-yourself version, go ahead and contact a professional. Compare fees and costs, though. Remember “credit counseling” is a for-profit business. You will pay some fees for having someone else handle your debts. And you want to be aware that it can affect your credit score. So be prepared for that.
But no matter which route you choose, it is important to remember that you need to change your outlook on debt if you want to live truly debt free. You need to stop amassing more debt and practice discipline in your discretionary spending. And you need to start saving money. After all, whether you do-it-yourself or get professional help for your debt reduction, if you don’t stop spending, you’ll be right back where you started.
Miranda Marquit is an editor for DestroyDebt.com, an informational site about getting out of debt.
Are you facing the danger of bankruptcy? An IVA (Individual Voluntary Arrangement) might be a less serious solution to your debt. Learn about IVAs and other debt solutions from experts in debt advice and put your mind at ease about your financial situation.
- Two carnivals are up! Frugal Underground hosts this week's Carnival of Debt Reduction, and My Money Blog has this week's Carnival of Personal Finance! The Carnival of Debt Reduction was a little lean this week; nonetheless bookchiq did a great job putting the carnival together! Thanks! Frugal for Life hosts the Carnival of Debt......
- Free Financial Management Software When it comes to your getting out of debt, having the right software can actually make a real world of difference. Some people tend to manage their efforts at debt reduction with something that is as simple and as straight forward as a computer spreadsheet while other people tend toward......
- Pay Off Low-Balance Debt First For A Big Mental Boost. There are many different schools of thought on the proper way to pay off your debt. Some say to start attacking the high-balance cards first, some say to go after the high-interest debt first, and some fall into my school of thought: start with the low-balance debt first. This is......
- Having Debt Does Not Make You A Bad Person. Two days ago, I received an email from a reader complaining about being in debt, feeling trapped by it, and feeling like a failure because his (or her?) friends are buying houses and are able to afford new cars. They felt really bad that they could not give their family......
- Smart ways to reduce credit card debt (This guest post is presented courtesy of Debt Consolidation Care.) Often, you take many credit cards in order to maintain a certain standard of living. But the problem arises when you can't repay of the loans. The creditors start calling you time and again. Your credit score gets reduced. Therefore,......
Leave a Reply