DIY Debt Management in 4 Steps

Hi Money Masters,

I hope you are now officially thawed out from the nasty winter weather and starting to enjoy some warmer temps! If you’ve been following me on Facebook you may have seen my latest poll. I asked my followers to choose the top two personal finance areas of which they wanted to learn more. The results showed a tie between debt management and investing.

This week, I’d like to talk about debt management and how you can “DIY” (do it yourself) your own debt management plan. There are professional debt management programs, however most charge a fee. So, if you are willing to commit to hard work and discipline then let’s strap on our financial tool belts and get to work! 

STEP 1: COMMIT

If you feel like your debt is getting out of control then there’s no time to lose. If you wait, it could get worse before it gets better. Make a commitment to yourself to put in the effort and tackle this debt head on! 

STEP 2: ORGANIZE

Once you have made the decision to battle debt you will want to plan and document your strategy. The first step in this process is you will need to go through your bills, bank statements, receipts, etc. Write down all your expenses, including necessities such as utilities and housing (mortgage or rent) as well as debts. Make sure these items are not neglected in your efforts to focus on the debts. You don’t want to risk losing your home in this process. 

List debts in order based on the amounts owed. Then list again based on their interest rates. These should include:

-Credit cards

-Student loans

-Car loans

-Medical bills

-Personal loans

You should also write down:

-lender name and phone number

-interest rate

-minimum payment due each month

Documenting these expenses creates a visual reminder as well as having key information right in front of you all in one place. 

STEP 3: STRATEGIZE

Next, comes how you will manage the debts. There are two popular methods of paying off debt that you may have heard of already. They are the avalanche and the snowball methods. I bet you are thinking “Helen, why are you talking about snow when we finally reached Spring?!” There’s a method to my madness, folks 😉

Avalanche 

This method of debt payoff focuses on paying the debt with the highest interest rate first. You still make the minimum payments on all your debts but as you pay one off, the minimum payment you would have paid now gets applied to the payment for the next debt in line. 

Snowball

This is very similar to the avalanche method but the main difference is you’re targeting debts based on lowest amount owed. Again, pay the minimum monthly payment on each debt. Then apply any leftover money to the debt with the smallest balance. Once that is paid off, move to the next smallest debt and so on. 

Both of these methods are very effective and each have pros and cons but it’s a personal choice as to which one to enforce. 

STEP 4: INVESTIGATE

To find extra money to put toward debts for faster payoff, look at the top areas of spending. The 3 major spending categories in most households are: 

-Housing

-Transportation

-Food

Reducing the amount spent in at least one, if not all, of these areas will definitely help you have more to allocate to those pesky debts. 

Managing your debt will take time and effort on your part but it can be done on your own if you stay diligent and focused. Don’t forget to celebrate the wins, no matter how small they might seem, in the long run the outcome is huge! 

Blessings to you all,

-Helen