Do It Yourself Debt Reduction Plan

During tough economic times, many people avoid bankruptcy by turning to debt management companies for assistance paying off their debt. While many of these companies are legitimate resources for helping people get out of debt and avoid bankruptcy, for many people a do-it-yourself debt reduction plan can accomplish the same thing without having to pay a company fees for their services.

Take Stock of the Situation

How much debt do you really have? Go through your credit card statements, loan statements, check register and bank statements and make yourself an accurate and complete list of expenses and debts you pay. On your list, include the creditor or account name, how much you owe total, what the minimum monthly payment is, and how much you pay in interest or finance fees. Also include your monthly living expenses, like mortgage or rent, utilities and car maintenance.

Is your income enough to pay for everything you have to pay each month? If your income is large enough to pay at least the minimum payments on everything you owe each month, the situation may not be as bad as you expected. If your income is less than what you owe each month, you may need to take drastic measures to reduce your living expenses to free up more of your income for debt repayment.

A debt reduction plan will help you dig yourself out of debt. You’ll need 100% commitment to the schedule you create.

Negotiate with Creditors

One of the benefits of working with a debt management company is that they will try to negotiate on your behalf with each of your creditors to get either a lower interest rate or a lower monthly payment. What you may not realize is that you have the same bargaining power as the debt management companies do, and you just need to call each of the creditors you have, explain the situation, and ask for a different payment arrangement.

You could end up with a lower interest rate for a temporary period of six to twelve months just for making the phone calls. A lower interest rate means more of your monthly payment will go toward your balance and you’ll pay it off faster. You could also get a lower minimum payment amount, which doesn’t help you pay it off faster, but can help you stretch your income and make it possible to keep up with all your financial obligations that you weren’t able to at the higher minimum monthly payment amounts. In some cases, the creditors can even temporarily stop charging you late fees while on the new payment arrangement.

Create Your Debt Reduction Plan

Once you have negotiated new payment arrangements with each of your creditors that will work with you, update your list to reflect the new amounts you are required to pay each month. Sit down and make yourself a plan to reduce and pay off as much debt as possible.

Where is your money going now? Eliminate any unnecessary expenses (don’t buy coffee on the way to work, keep to a grocery budget, don’t eat at restaurants, don’t buy new books or music when you can borrow from the library, etc).

Subtract your necessary expenses from your income (these include your rent, utilities, car insurance, gas, etc) and look at how much you have left. This is what you have available to pay off debts. Make a plan that allows you to pay off the debts with this money as quickly as possible, and then stick to it. Before you know it, you could be debt free.