Do-It-Yourself Debt Management
By Dave Galahad
Debt Management is now made easier than ever
in big part because of competition between financial institutions. Many checking
accounts offer no minimum balance and free online bill pay, free transfer
of funds between accounts, among other features in order to gain new customers
and retain current ones.
This
is simple to achieve in the following 10 steps. All you have to do is follow
a simple plan and monitor it from time to time. Before you know it, you'll
be out of debt completely. You'll pay no credit counseling fees, no debt
management or debt consolidation fees. This option is a little less stressful
because there is only one day per month you have to remember to make a payment;
and depending on your consolidation method, it could bring you lower interest
rates so you can pay off debts quicker. |
| 1. Make a list of all your bad debts: include "creditor"
"amount owed" "minimum monthly payment" and "number of months to pay off"
(divide the total owed by the minimum payment).
2. Rank each debt based
on the number of months to payoff. Debt #1 will be that with the least amount
of months to payoff. Debt #2 will be the next lowest number of months to
payoff and so on.
3.
Evaluate your income and spending habits and come up with an extra $150 to
$200 per month. --Take your lunch - $5/weekday to eat out adds up to $100/month.
--Coffee - drink it for free at the office. --Specialty coffee drinks - $4/day
for a coffee drink for a month adds up to $80/month. --Tobacco - Cigarettes
cost approximately $23/carton. If you smoke 2 packs a day, that carton will
last you 5 days. Your monthly cost of this habit is $138. Quitting would
be best but if that's not an option, cutting back will save you money on
cost of cigarettes which can be put toward your debt plan. --Check your other
fixed monthly expenses to see if you can reduce them further and put the
extra money toward paying off debts. --Use these things for rewards for reaching
milestones in your debt management plan instead of crutches to get you through
the day. Pay off your debts with the extra money.
4. Open a separate checking account from your personal
account(s) - needs to have free online bill pay, no minimum balance, and
be able to accept funds transfers from your personal checking account. If
you can get an interest bearing account with the above-mentioned features,
that would be outstanding.
|
| 5. Determine the minimum
amount you need to pay on each debt.
6.
Set up an account transfer from your personal checking account to your bill
pay account for the amount you came up with in step #5.
7. Set up your automatic bill pay for each creditor
so that the funds leave your bank and arrive at your creditor a few days
before the due date. Pay the minimum amount on all the debts numbered 2 through
the end of the list.
8. On debt #1, pay the
minimum plus all the extra cash you came up with in step #3.
9.
Focus on debt #2 once debt #1 is paid off, using all the income you were
using to pay on #1.
10. Repeat this process until all the debts on your
list has been paid in full. Also, once all the debts are paid, leave the
monthly transfer in place and make the money you've saved to this point work
for you instead of the other way around.
The key to this plan is
to not take on any additional bad debt, remain laser focused on paying off
debts and using extra income you can come up with for the cause. At least
once a month you should monitor your plan to make sure the payments are being
made on time, and everything else is going according to schedule.
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