DIY: Get Out Of Debt On Your Own

It’s not difficult to rack up a significant amount of debt, but to get out of debt it is a different story. Many consumers struggle with managing and paying off debts once they’ve gotten in over their heads. This is especially true when these individuals don’t have help from family, friends, or professionals.

However, despite the challenge it presents, it’s possible to pay down debt on your own. If you find that you owe an outstanding amount of money to creditors, take the following steps to get out of debt.

Determine How Much Debt You Have

The first part of becoming debt-free involves taking a close look at how much money you owe on each of your accounts. Once you have an estimate, compare it to your income to come up with a debt-to-income ratio. For many people in serious debt, their DTI ratio will be more than the recommended 33% or less. Having too much debt to pay in comparison with the money you earn is part of what makes debt so difficult to pay back.

That said, having a clear layout of the debt you owe is the first step toward paying it off. Once you know how much debt you owe, you’ll need to ensure that you earn enough income to make reasonable payments. At the same time, you need to make changes to your spending behaviors.

Calculating Your Debt-To-Income Ratio

You can calculate your basic DTI ratio on your own by adding up your debts and comparing that sum against your income. For example, if you earn $40,000 per year, and your combined debt is around $20,000, your DTI ratio is 0.5.

Fortunately, there are several debt-to-income calculators available so that you can gather a reliable estimate without having to total the sums on your own.

Consider each debt when calculating your DTI and don’t skip key elements like credit card debt, auto loans, or student loans. Most people leave out mortgage loans when considering debt. This is because mortgages tend to be very long-term debt, which is not considered “bad” debt.

Developing Smart Spending Behaviors

Sometimes, debt happens even if we have spent money wisely in the past. Job loss, student loan debt, or sudden medical emergencies can have a big impact on an otherwise financially-smart person. In those situations, it’s important to continue spending wisely while trying to pay off debt.

However, there are plenty of situations where irresponsible spending leads to significant debt. In these circumstances, it’s in your best interest to develop smarter spending habits. This way, making a dent in your debt will have a positive impact instead of throwing money at debt for no real reason.

Take a look at the behaviors that helped get you into debt in the first place and work to remedy them. For example, if you have been living well beyond your means thanks to credit cards, change your spending habits. Stop buying things you don’t truly need and start working at paying off what you already owe.

If necessary, put your credit cards away or reserve them for emergencies only.

Additionally, when it comes to student loans, if you’re already in significant debt for one degree, do not get into more debt for another.

If Your Income Is Too Low

Substantial debt can make it to where your income, whether it’s generally acceptable or already on the low side, will be less than what you need.

If you find yourself in debt that’s going to require payments that surpass your income or take up too much of your current paycheck, you’ll need to supplement your income.

Some consumers pick up a second job in order to make more money. If your current job allows it, request working more hours so that your paycheck can make more of a dent in your debt.

Earning more money than you owe is the best way to get out of debt in a reasonable span of time. This may sound easier said than done, but even working an additional eight hours per week can allow you to put a few hundred dollars more toward your debts than you usually do.

Credit Assistance

Much of the time, high interest rates are responsible for a significant portion of debts. To help reduce high-interest payments along with debts, it might be time for a balance transfer. If you choose to consolidate your debts, you can combine each balance into a single account. This way, there will only be one interest payment to consider. In addition, debt consolidation options usually offer relatively low interest rates.

If your debt is too significant to combine all of your accounts into a single credit card, you may also want to look into debt consolidation loans. Much like balance transfers into a single account, debt consolidation allows you to combine debts. Most of the time, the interest rates are low enough to allow in-debt individuals to pay down what they owe.

Debt consolidation loans may also be ideal for consumers that can’t stop spending after initiating a balance transfer. With debt consolidation loans, the debt is still being taken care of, but the temptation to spend is gone. Because debt consolidation loans do not work like a credit card, you’ll be better able to pay off your debts without incurring more of them.

Credit Counseling

If you’re struggling to adopt smarter spending habits and you’d like professional financial advice, consider seeking out credit counseling. A reputable credit counselor can take a look at your debts, help you determine a budget, and stick to a payment schedule. Credit counseling services also help consumers adopt better spending habits so that once the debts have been paid off, you’re unlikely to make the same mistakes.

By learning how to effectively manage your current debts, income, and spending practices, you can make it easier to pay off your debts. Even if you’re in a substantial amount of debt, there are steps you can take to get back on your feet. Talk to a credit counselor or credit management service for expert advice on how to manage your finances. It’s entirely possible to get free of debt, but the right steps need to be taken and permanent changes have to be made.