DIY Debt Solutions

Many people who need options for debt relief turn to a professional debt settlement company for help. Professional debt relief companies negotiate with creditors for you. If you need the help, it’s there. But it’s a good idea to also explore your options for do-it-yourself debt payoff first.

DIY debt strategies could work if you have:

• Extra money to pay creditors,

• Good enough credit to pursue debt consolidation, or 

• The confidence to negotiate with creditors on your own. 

If you're interested in do-it-yourself debt strategies, here's what you need to know. 

Assess Your Current Financial Situation

To find out where you’re going, first think about where you’ve been. Take a deep breath and add up how much money you owe, and to whom. You can get this information by logging into your loan and credit card accounts, or by taking a look at your most recent paper statements, if you receive them in the mail. 

Write down the total balance for each loan/account and find out the interest rate. Make sure you know the monthly minimum payment you must cover to avoid defaulting on the loan. Then add everything up for a total picture of your debt. As you pay down balances, update these numbers—a spreadsheet can be a great place to keep track of your total debt load. 

Learning your balances and totaling them up could help you decide how to best take on your debt, whether that’s by sending extra money with a focused payoff strategy or exploring debt relief options. If you owe a few thousand dollars on credit cards and think you can modify your spending to funnel money to those balances until they hit $0, a DIY debt payoff plan might work for you. If you have too much debt to effectively handle on your own, you could consider methods like debt settlement. 

How much debt is too much? One way to tell that you owe too much is to calculate your debt-to-income ratio. Owing too much (debt) relative to what you earn (your income) could mean struggling to keep your head above water.

You can calculate your debt-to-income ratio. First, add up your monthly debt obligations (those minimum payments) and housing expenses (either your rent or your total monthly mortgage payment including property taxes, insurance, and homeowners association dues). Then divide that number by your monthly income and multiply the result by 100. If you earn $4,000 a month and pay $1,700 to your creditors, your DTI is 42.5%. You might be yearning for some breathing room in your budget. 

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Tips to Help You Create and Stick to a Budget That Prioritizes Your Debt Plan

To find money for your debt payoff plan, you’ll need to consider all your expenses compared to your income. That’s right, you need to make a budget. Budgeting is the ultimate DIY financial move. Rather than limiting your spending, a budget can show you your total spending versus bills, and help you focus your money to reach your goals—including debt payoff. How else will you know how much you can afford to allocate for paying down your balances? 

Technology has given us options for budgeting beyond the simple pen and paper or basic spreadsheet of old. (If those lower-tech methods work for you, they remain excellent ways to budget.) But with the rise of the smartphone came apps. There’s a world of money-saving apps you can use to assess your cashflow and find money to direct to your savings account, debt payoff, or whatever you like. If you want to focus on debt even harder, there are even apps specifically geared toward debt payoff, too. 

If you want to put your finances on a tight leash, a zero-based budget could be right for you. (Some budgeting apps work with this model—one example is You Need A Budget, or YNAB for short.) This budgeting plan gives every dollar you earn a job—covering essential expenses, fun spending, or debt payments. 

Another option is the envelope method. You decide (based on past months of spending) how much to allocate for each cost every month. Once you’ve spent down the money you’ve set aside for that bill, you’re done until next month. With this method, you could decide how much you want to spend on debt payoff and gear the rest of your nonessential spending around that. This could help you create a temporary bare-bones budget focused around debt payoff. 

Whatever you pick, your budget is your best friend in the DIY debt payoff process. And even if you opt for professional debt settlement help, your budget can still show you how much you can afford to save toward settling your debt for less than you owe. 

Ways to Increase Your Income 

If you don’t have a ton of money left over at the end of the month to funnel toward debt payoff, try to increase what you bring in. Extra money coming into your household that isn’t already committed to monthly bills or other spending can all be put toward debt payoff. 

Smartphones have given us budgeting apps, and they’ve also provided an entry point for regular people to the gig economy. Explore the world of ride-hailing, food delivery, household tasks, and pet-sitting. A few self-scheduled DoorDash or Uber Eats sessions might be easier to fit into your week than a part-time retail job. And around the holidays, you might find more options for flexible side hustles you can even do from home. 

Another possibility to increase your income is to find out if you’re eligible for overtime at your regular job or maybe even a raise. If you earn a set salary, overtime might not be possible, but if you have an hourly job, ask about opportunities to put in extra hours. 

To get a salary boost, you’ll have a greater chance of success if you can show in a concrete way how you bring extra value to your employer. Go in for that meeting with your supervisor armed with examples of how you’ve increased productivity, boosted sales, or saved the company money with your work. 

Make Extra Payments On Your Debt

If you have extra money to send to those you owe (or you can earn more using the tips above), you could make extra payments to your creditors until your debt balances are paid down to $0.

If you take this approach, continue making the minimum payments on all of your debts, while at the same time also making extra payments against one. This can help you laser-focus your debt payoff. Depending on which technique you choose (debt snowball or debt avalanche), you could either save money on interest or score quick wins at the start of your debt payoff journey. Either could be motivation to keep going. 

You could make extra payments on your debt with:

• The smallest balance 

• The highest rate 

The first approach is called the debt snowball. The idea is to build momentum by paying off your smallest balance first—a quick win that keeps you motivated. As each debt is paid off, you're more motivated to pay down the next one. 

Start by going back to your list of debts and identifying the one with the smallest balance. Figure out how much money you can pay on your debts each month. Make sure you can cover minimum payments on everything. For the debt with the smallest balance, you’re going to send everything left in your debt-payoff bucket after the minimum payments are covered. 

Once that first smallest debt is paid in full, you roll all the money you were paying on it toward the next debt on your list in addition to the minimum payment you were already making. As you pay off each debt, your payment toward the next one gets bigger and bigger, just like a snowball rolling downhill. By the time you’ve reached your last debt, you’ll be sending all your debt payoff cash to it every month. 

The second method is the debt avalanche. This could save you money in interest charges over time, so it makes mathematical sense. If your most expensive debt has a large balance, it may take you a long time to pay it off in full. This can be frustrating and cause you to lose momentum. Consider your personality when you’re deciding between snowball and avalanche. 

To set up your debt avalanche, go back to your list of balances, interest rates, and minimum payments. This time, you’ll be prioritizing the debt with the highest interest rate, regardless of the balance. The odds are good it’ll be a credit card, as credit cards are notorious for charging high interest rates.

Just like with a debt snowball, consider the required minimum payments across all your balances and make sure you can pay them. You’ll be sending all extra cash to your debt with the highest interest rate. Once that’s paid off, send the extra money to the balance with the next highest rate, and so on. By the time you’re paying off your last debt, you’ll be sending all the money to that one debt. 

Using a debt avalanche could save you money on interest. But if you need a little more mental and emotional motivation to really get rolling on debt payoff, that’s absolutely fine. A debt snowball might give you that more quickly. Seeing a debt balance hit $0 sooner than later can be an amazing feeling and give you the motivation to keep going with your debt payoff plan. 

One advantage the debt snowball and debt avalanche share is that either strategy could help you build and maintain a strong credit profile. Making on-time payments and reducing your debts are two huge steps toward good credit. 

Consolidate Your Debt

Debt consolidation means getting a new loan to pay off multiple existing debts. It’s simpler to make one payment instead of many, and you might end up with a lower interest rate, saving you money on your debt payoff. Also, you’ll have a fixed timeline for payoff and an end date, when you’ll make your last payment.  

Many people use a personal loan for debt consolidation. You would need to meet the lender’s qualification guidelines. 

If you’re a homeowner and you have enough home equity to borrow against, you could use a home equity loan or HELOC. Home equity loans and HELOCs are guaranteed by your home and tend to be less expensive than other kinds of loans. But if you don’t repay the debt, you could lose your home.

When you consolidate debt, your new loan ideally has a lower interest rate than the debts you're paying off. The monthly payment on the new loan could be lower than the total of all the monthly payments you’re making now. Note that if you opt for a longer loan term and a lower monthly payment, you could pay more in interest overall. 

If you move credit card debt to an installment loan, your credit standing could improve. That’s because high credit card balances have a negative impact on your score. Installment loan balances don’t affect your credit standing in the same way. 

Any time you apply for a new loan, you could temporarily lose a few credit score points. This is because your credit report will be checked by the lender—this is called a hard credit inquiry. 

If you’re going to pursue debt consolidation, make sure you have a plan to avoid charging up your credit cards again once you've used a consolidation loan to pay them off. Doing so could leave you deeper in a debt hole. 

Settle Your Debt

Debt settlement is an option when you want to DIY your debt. You could do it yourself, but there are companies that will do the legwork for you. 

Debt settlement is a type of debt relief, and it means getting your creditor to agree to accept less than the full amount you owe but consider it payment in full. Creditors may be willing to do this if it’s clear that you have a financial hardship and can’t afford to fully repay your debt. Debt settlement only works with unsecured debt, like medical bills, personal loans, and credit cards. It's not an option if you're struggling with a mortgage or an auto loan. These loans have collateral that can be taken back and sold by the creditor to recoup their loss. 

Before you call your creditors, take a deep breath and get ready to discuss your financial difficulties. Prepare yourself to approach the conversation in a firm but polite way. Don’t be afraid to ask to speak to a supervisor or call back another time to reach a different person who might be willing to work with you on negotiations. 

Negotiating with creditors can be difficult and time-consuming. Lenders want to be repaid, and you should expect them to say so if you call and ask for partial debt forgiveness. To successfully negotiate, you’ll need plenty of grit and patience. If you don’t have the time or the stomach for this, a debt settlement professional can be a great asset. They’ll do the negotiating and it’ll be up to you whether you approve a settlement offer. 

Settling debt isn’t free. You’ll need something to offer your creditors. If you want to offer a single lump-sum payment, you’ll need to have that money ready. To save this money, most people pursuing debt settlement choose to stop paying their creditors for a time. (It can be hard to afford both.) Some creditors might be willing to work out a payment plan with you for debt settlement.

Also, creditors may be less willing to negotiate if your payments are on time and current, and it’s clear that you can afford to keep up. Stopping payments is a clear signal of financial distress. Doing so could show creditors that settling debt with you could be their best chance of getting paid something, even if it’s less than you owe. 

If you miss debt payments, expect a negative impact on your credit. Missed payments and collection accounts stay on your credit report for seven years. It’s possible to rebuild your credit, no matter how far down the scale you start. With every on-time payment you make after debt settlement, you’ll be building a positive payment history that could increase your credit score over time.

Working with a professional debt relief company could increase your chances of successful debt settlement. A reputable debt settlement company should already have relationships with your creditors, like major credit card companies, banks, and other lenders.

Monitor Your Progress and Credit Report

While you’re paying off debt, make sure you regularly check in on your balances. This could help with motivation—if you notice those numbers marching down to $0 owed over time, it’ll likely be easier to keep sending that money month after month. Look for ways to celebrate at regular intervals—maybe you could treat yourself to a lunch out or other splurge. 

Also check in on your credit reports and credit scores during your debt payoff process. This could also help keep your spirits up, as amounts owed relative to credit limits is a big part of credit scoring. If you’re doing a debt snowball or debt avalanche, you’ll be sending money to your creditors month after month. As you bring those credit card balances back down to Earth and make on-time payments, you could see your credit standing start to improve. 

How do you get your credit reports? Visit AnnualCreditReport, where you can get your reports weekly from Equifax, Experian, and TransUnion, the three consumer credit bureaus. It’s a good idea to do this periodically even if you’re not in debt payoff mode, as your credit reports show you the factors contributing to your credit score and can even alert you of possible fraud, if you spot accounts that don’t belong to you. 

As for your credit scores, it’s likely that your bank or credit card issuer can give you access to your score for free. Check its app or website for details. 

Common DIY Debt Payoff Mistakes to Avoid 

Paying off debt comes with a few traps. 

It can be disheartening when you’re paying down your credit card balances and you end up with an unplanned bill that erases some of your progress. Consider saving up a small amount of money (maybe $500 to $1,000) before beginning your debt payoff plan in earnest, so you can cover a vet bill for your pet or a surprise repair on your car.

Speaking of those credit card balances, it’s a good idea to stop using your cards even for mundane purchases. Sure, earning points on your groceries or gas can be a nice bonus. But it’s best saved for when you’re able to pay off your balance in full every month. Put the cards in a drawer, and consider canceling the ones that charge you an annual fee while you’re in debt payoff mode.

And finally, addressing your debt can be hard, so try not to get discouraged. Remember, you can always consult with a professional if you need help or support along the way. If you think debt settlement may be your best method for tackling your debt issues, learn more about why you should choose Freedom Debt Relief, and how we can help you.

Get Started With Debt Payoff Today

The power to pay off or otherwise address your debt is in your hands. And for you, that might mean getting in touch with a debt professional. Learn more about how Freedom Debt Relief works and get help from our debt consultants to make a plan to tackle your debt.