Do you think you can be successful when you try to DIY debt consolidation? It is possible as long as you know how to do it properly. Not only that, you need to have the right personality and disposition for it.
All types of debt relief programs are challenging. You need to be determined to complete it so you can achieve debt freedom. If you do not have the right disposition and motivation, you might end up failing to finish what you started. That can be dangerous because it can leave you in a worse financial situation than when you started.
While doing your own debt consolidation is possible, you need to make sure that you have what it takes to do it yourself. If not, there are other ways to consolidate debt. But if you want to really learn your lesson, you should try to achieve debt freedom on your own. It may be harder but it will teach you a lot of lessons. Not only that, it will increase the value of your debt freedom – making you more cautious of accumulating debts again in the future.
Steps to succeed at DIY debt consolidation
So what are the different steps that you should follow to start your DIY debt consolidation program?
Identify all your debts
Begin with a list of all the debts that you will consolidate. According to statistics, consumers owe different type of debts – credit card, auto loans, student loans, and mortgage and most of them continue to grow in balance. It is actually growing faster than the economic improvements in the country. This is quite dangerous. You have to do something about it and consolidating your debts is one of them. If you are determined to do this on your own, you should get to know the problem before you look for a solution. List your debts – including the balance, the monthly payment, interest rate, and the due date.
Analyze your current financial situation
After identifying the problem, you want to find out your ability to solve it. That means taking a look at your financial situation. This includes your monthly income and any asset that you have accumulated over time. You want to find out how much you can comfortably afford to pay. When it comes to your income, you should only consider the amount that you regularly get. If you have an irregular income, consider only the amount that you are sure to have – maybe this is the lowest amount. You want to base your repayment plan on this so you will never fall short. If you earn more in a particular month, you can save it or make your debt payments bigger to reach debt freedom faster.
Ask yourself why you need to consolidate your debts
Before you look into your debt relief options, it is important to first ask the question why. Why do you need to consolidate your debts? Do you want to lower the minimum payment requirement? Are you trying to simplify your monthly payments? Or do you want to save money? These questions will help you define the details of the DIY debt consolidation strategy that you will pursue. By knowing the “why” it is easier to find the right elements that will make a debt solution perfect.
Borrow a loan to consolidate debt
At this point, you can now proceed to borrow a debt consolidation loan to pay off your multiple debts. Depending on the answer to the “why” you can decide what type of loan you will borrow and the repayment period it will have. If you want to lower your monthly payments, you need a longer repayment plan so your debt can be distributed over more months. However, if you want to save money, you need a shorter repayment plan so you do not pay a lot on the interest amount.
Pay off the multiple debts
When you get the loan, you should use it to pay off the multiple debts as intended. Since you are doing the DIY debt consolidation version, it is up to you to follow through with the plans. If you fail, it will only increase your debts. So practice self-control and pay off your various debts as intended. Do not use it for something else or decide not to pay everything so you can use some of the money for another expense.
Commit to a repayment plan that you can afford
Once you have paid off the debts, you need to come up with a repayment plan that will guarantee your monthly payments. Make sure this is a plan that you can afford. Do not make the payments too big that your budget becomes too restricted. Make sure you have enough money to pay for the basic necessities. Because if not, you might be forced to get from your debt payment fund and that will make your contributions fall short. If you cannot meet the monthly payments, that will put you in trouble with the lender.
How to ensure you can complete your DIY debt consolidation
In DIY debt consolidation, it is important to remember that borrowing the loan and using it to pay off your multiple debts do not diminish your balance. It is still there. You just organized it so it is easier to pay each month. That means you still have to pay it all off to be completely debt free.
So what do you do? You should do what it takes to meet your monthly payments. To do that, you need to do the following.
Cut back on spending
Start by lowering your spending so you can allocate more towards your debt payments. According to statistics, more people have started to increase their spending. While most people who have opted to spend more said that it is only temporary, this is unacceptable when you are trying to get out of debt. You need to do what it takes to lower your spending.
Increase your income
While lowering your monthly expenses is the most immediate way to increase your debt payments, it can be limited. If you want to increase your payment fund further, you should start earning more. Take side gigs or ask for a raise. You can use your hobby to earn extra money. If you know how to bake goodies, you can sell that to people that you know. If you are creative enough, you are bound to find something that you can use to earn.
Stop borrowing money
Finally, you need to stop borrowing money for now. Otherwise, you will be stuck in a debt cycle that you will be harder to get out of. Do not worry because this is only temporary. Once you have completed your DIY debt consolidation efforts, you can start using your credit cards again. However, you need to ensure that you will be smarter this time. This will help you rebuild your credit reputation and increase your credit score.