- A How-To Guide for Making Your DIY Debt Management Plan
- How to Set Up Your Own Debt Management Template
- 1. Build Your Debt Management Spreadsheet
- 2. Decide on a Debt Management Strategy
- Debt Snowballing
- Debt Stacking
- 3. Open Negotiations With Your Creditors
- 4. Spend Less
- Limit Your Expenses
- Avoid Accumulating More Debt
- 5. Expand Your Lines of Income
- 6. Monitor Your Progress
- Comparing Your DIY Debt Management Plan
- Tips to Make Your DIY Debt Relief Plan More Manageable
A How-To Guide for Making Your DIY Debt Management Plan
Do your current debts have you feeling like you’ve bitten off more than you can chew? If you find yourself in such a position, the prospect of paying for another service to craft a debt reduction plan for you probably isn’t your go-to option.
If you find yourself in such a position, you will greatly benefit from taking the time to build your own, free debt management plan and debt management worksheet to take back control of your financial situation. Such a task can seem daunting, at first, but by following our guide, you can quickly get organized and give yourself a better picture of how you can get started repaying your debts.
Unsecured loans like credit cards and medical bills usually entail much higher interest rates, and so having an understanding of your situation is an essential first step on the path to becoming debt-free.
How to Set Up Your Own Debt Management Template
Setting up a debt repayment plan template involves specific steps that you will need to follow closely to find success. These are:
- Organizing your debts into a spreadsheet
- Deciding on a debt management plan
- Lowering your interest rates
- Limiting new expenses
- Monitoring your progress through regular credit reports
The first thing you are going to want to do is to take a closer look at what’s constituting your debts. From there, you can decide how to best begin paying off your debts. Once you’ve got a solid plan, you can make things easier for yourself by contacting your creditors and negotiating for lower interest rates.
This way, even if negotiations are unsuccessful, you’ll still have a solid debt relief plan for yourself.
Regardless of whether you’re able to lower your interest rates or not, it is essential that you adjust your spending habits and your budget. With that knowledge in your back pocket, you’ll have started on your journey toward freedom from debt.
Part of your research should involve contacting your creditors, and any collection agencies your debt may have been sold off to, to request reductions in your interest rates and fees. It is in creditors’ best interests that debts are repaid, so while the task of negotiation may seem daunting, you may find that many institutions will be willing to work with you.
It is important that you go into negotiations with realistic expectations. Every bank will have a different policy for payment arrangements and debt settlements, and each case needs to be considered on an individual basis, which will depend on your situation and your history with your bank.
If your credit issues have arisen from extraordinary and unforeseeable circumstances, your bank may be willing to take those into account. Other factors, like whether you’ve previously taken out a home or car loan, and whether you have a checking account may also work in your favor towards securing a positive resolution when entering negotiations with your creditors.
1. Build Your Debt Management Spreadsheet
Begin by tallying all of your existing debts. This should include student loans, auto and home loans, personal loans, as well as any credit cards and medical bills.
When making the tally of your debts, be sure to note down onto your spreadsheet the name of each lender, the total balance due for each along with the interest rate, minimum payments due for each monthly, and the due dates. It will be useful for later steps to record the contact information of each lender, as well as any other pertinent details like terms and fees.
Next, you’re going to want to take into account your monthly expenses, such as food, rent, and childcare, to name a few. Then, tally your monthly income. Your income minus your expenses will give you your discretionary income, which you can use to then pay off your debts.
2. Decide on a Debt Management Strategy
When tackling debt, the two strategies you will need to consider are debt snowballing and debt stacking. What differentiates these two are how different debts are prioritized. With both strategies, you will need to aim a larger payment at one balance, while paying the minimum payments on your other balances.
In this strategy, you will focus on paying off the debt with the lowest balance. The biggest advantage of this strategy is the early victories and motivating boosts you will achieve and receive by paying off the easiest debts first.
- List your debts from the smallest to the largest regardless of the interest rate.
- Make minimum payments on all your debts except the smallest.
- Pay as much as possible on your smallest debt.
- Repeat until each debt is paid in full.
The drawback to this strategy is that while you’re tackling smaller debts, the larger debts are accruing interest, which will result in you having to pay more in interest in the long run.
With debt stacking, you’ll need to consider the interest rates rather than total balances of your different debts, so you can immediately see the importance of organizing this info in your debt reduction plan Excel sheet for deciding on the best strategy for your situation.
- List your debts from the highest to the lowest interest rate regardless of the balance.
- Make minimum payments on all your debts except the one with the highest interest rate.
- Pay as much as possible on your debt with the highest interest rate.
- Repeat until each debt is paid in full.
This method may take a longer time to tackle individual debts, but you will end up having to pay less overall.
3. Open Negotiations With Your Creditors
Once you’ve decided on a strategy for paying off your debts as they are, you can feel more confident to begin negotiations with your creditors. With reduced interest rates, each of your payments will have a greater impact on your overall debt. Doing the work required in the previous two steps will show your lenders you’re serious about becoming debt-free.
Your debt reduction spreadsheet, should at this point, contain all the information you’ll need to open productive negotiations with your lenders.
Aside from doing diligent research on your debts and your creditors, here are a few more steps to steer negotiations in your favor:
- Check for competing offers. Look through your mail for any offers from competing credit card companies with lower interest rates. You can bring these to your credit card company’s attention during negotiations to put the pressure on them to keep your business.
- List your talking points. Go over your debt relief Excel sheet and take note of any pieces of information you want your talking points to center around, and draft a basic script to address these. Things you’ll want to highlight are your credit score, your payment history, your years of credit, and certain different types of credit you may hold such as auto loans, student loans, and mortgages, as well as any of competing offers you may have found in the previous step.
- Be adamant. If the person you’re talking to tells you they can’t help you, ask if you can talk to someone that can.
- Be courteous. Nothing good will come from being confrontational. If all else fails to convince your creditor to lower your interest rate, instead of arguing for why you deserve a lower interest rate, ask your creditor politely why they are unable to work with you, so you can begin working on those factors toward a positive outcome.
Before starting on negotiations, it will help you to have realistic expectations. While it is in both your and your creditors’ best interests that your debts are repaid, you will need to be patient; negotiating for lower interest rates will usually take multiple calls before an agreement is reached.
Many people will find the prospect of negotiating with their creditors extremely arduous and frustrating, especially when the effort exerted offers no guarantee that a positive resolution will be reached.
You may decide you would rather have someone else handle this for you. DebtQuest USA can work with you to negotiate with your creditors and consolidate your payments; we’ll handle all the busywork and to deliver an affordable monthly payment plan ideal for you.
If you’d rather not have to worry about opening negotiations and coming up with your own debt relief plan from scratch, so you can focus on paying your debts back, DebtQuest’s debt repayment plan template is an ideal option for you.
4. Spend Less
If you have a good understanding of your monthly expenses and when they’re due, you’ll be better equipped to manage your debt. Before deciding on which expenses need axing, you can organize them on a calendar so you can see all of your expenses and when they’re due. Keeping track of your monthly expenses can help you gain better insight into which are essential and which are not, putting you one step closer toward your financial goals.
Limit Your Expenses
Intuitively, it’s understood that cutting back on expenses will allow you to allot more of your income toward repaying debts. Go over the expenses you tallied in your Excel sheet; debt relief management is most effective when you are willing to make sacrifices to lower your living expenses.
The big three expenses to prioritize lowering are housing, food, and transportation, as these usually contribute the greatest proportion of monthly expenses, but as these represent certain necessities lowering these may not be possible depending on your individual situation.
Beyond the big three, you ought to consider limiting your spending on entertainment, shopping, memberships, and monthly subscriptions. Minimizing or eliminating your expenditures on these and other luxuries will help you pay off your debts faster, thus lowering how much you’ll need to pay overall, so you can more quickly get back to enjoying these luxuries guilt-free.
Avoid Accumulating More Debt
If you’re focusing on paying off your debts, the worst and most counter-productive thing you could do is accumulating more debt. To avoid doing this and getting yourself stuck in a loop, your top priority should be restricting your own access to your credit cards. If possible, close or freeze all of your cards, and don’t apply for new cards while you’re paying off your debts.
Closing credit cards, while you have an outstanding balance on your cards, can negatively impact your credit score, as closing credit cards will affect your credit utilization ratio, which is the ratio of the combined outstanding balance against the combined maximum limits on all your cards. To minimize the negative effects of closing credit cards, prioritize closing cards with the lowest limits first.
Many credit cards now also give you the option to freeze them momentarily. You should call your credit card company to ask whether this option is available for you, and for how long your card will be “frozen.”
5. Expand Your Lines of Income
While some may have found themselves in this position after an unexpected lay-off, if you’ve been fortunate enough to have maintained your employment, that should be the first place to look for career growth and advancement opportunities —companies value employees that help them save money or make more money by improving efficiency and working hard to relieve the burdens on other members of the team. If that sounds like you, you can use that as leverage when asking for a raise.
Beyond your career, you can get creative by finding ways to monetize your hobbies or your daily activities for some extra cash.
No matter how you are able to acquire additional income, it is essential that you commit what you earn towards repayment of your debts, rather than resuming spending on extraneous luxuries.
6. Monitor Your Progress
Your debt management plan will be useless if you’re unable to stick to it, and to do this, you need to stay updated on your progress. You can do this by requesting credit reports from the three credit-reporting agencies —TransUnion, Equifax Inc., and Experian PLC— which can be done for free from each annually via AnnualCreditReport.com.
By staggering your credit report requests four months apart, you can get accurate credit assessments thrice a year for free. Be sure to record your progress from these reports, in the debt management spreadsheet you created.
Comparing Your DIY Debt Management Plan
After tallying and prioritizing all of your debts, prioritizing and minimizing your expenses, and developing your existing and new lines of income to devise your payment schedule, your next step will be to compare your debt management worksheet with a debt management plan template from a credit counseling agency.
Contact a credit counseling agency, and inquire about enrolling in a debt reduction plan, and get an estimate for a consolidated monthly payment. Then, compare that with the total monthly payment that you were able to negotiate on your own.
If the total monthly payments you’ve arrived at through negotiating are higher than the quote you receive from the counseling agency, then, depending on the cost of the agency’s services, it might make more sense for you to avail of their expert services instead of pursuing your own DIY debt management plan.
If your total monthly payments are lower than the quote you receive, you’ll know that your work has paid off; you’ve secured an optimal payment plan and saved money on hiring a third party to do the work for you.
Tips to Make Your DIY Debt Relief Plan More Manageable
If paying off debt were simple, you wouldn’t need strategies and plans. Your number one priority should be sticking to your plan and living within the means you’ve prescribed for yourself. As mentioned previously: spend less, limit your expenses, and avoid accumulating more debt.
Beyond that, here are a few tricks you can use to help make the process easier and to stay motivated.
- Set up auto-pay with creditors; this will make making your payments less of a conscious effort while ensuring your payments are always made on time.
- Pay more whenever you can afford to.
- See if you can work with your creditors to adjust your due dates to better align with your salary.
- If you’ve got strong credit, you may want to consider debt consolidation, either by applying for a 0% interest credit card or taking out a loan.
- Understand it’s not going to be easy. You may experience powerful negative emotions like grief, shame, fear, anxiety, or anger —that’s normal, and you’re not alone. Don’t be afraid to seek support. It’s important to manage your mental and emotional health along with your debt.
- Stay motivated. It’s essential that you learn to celebrate even minor victories. Set milestones for yourself, and remember to reward yourself as you progress past them. Plan something reasonable, yet special and commemorative to look forward to once you’ve made your last payment.
If you find that you aren’t able to manage your debt on your own, get in touch with DebtQuest USA. We would be happy to give you a consultation regarding your financial needs and help you come up with a suitable plan.