5 Steps To Credit Card Debt Reduction And Saving Money - DIY

Have you succumbed to the lure of credit cards and found yourself in a bit of a pickle because of it? Pull up a chair and have a seat. Welcome to the ever growing club of consumer debt. Your biggest challenge now is to dig yourself out of this situation and avoid having to pay anyone to help you do it.

Options at this stage are usually as follows (depending on the level of credit card debt):

• Consolidate into a loan.
• Debt Management.
• Bankruptcy.
• Do Nothing.
• Just pay off the cards over as long as it takes.
• Make the minimum payments and keep spending.
• Make an effective Do It Yourself (DIY) plan.

The more popular solutions, such as consolidation loans and debt management that we see being touted everywhere actually put the control of your money in other people’s hands. I don’t know about you, but for me becoming free from debt should not involve spending more money, or borrowing my way out of debt or letting others make "ALL" of the decisions for me.

So how does a DIY system work? Breaking it down into 5 steps, it might look something like this:

1. Address your spending habits and why you are in this situation. 

To ever win with money and have a comfortable financial future for yourself and your family, "YOU" have to take control your money and how it is used. There is no way around this. Take complete control of your finances and set yourself some realistic yet desirable goals for the future. This is the key to "success" and financial stability.

2. Know your options, exactly how they work, and why some of them may not be for you. 

Along the way you will be tempted by quick fix ‘make it all better’ solutions, like consolidation loans and debt management. As mentioned already there is a multi-billion dollar industry making a very healthy profit from charging consumers to get out of debt. A "DIY Plan" does not involve paying someone else to get you out of debt. Common sense says, the money that you are spending to get out of debt can be applied to the debt itself to get you out of debt even faster.

3. Know and fully understand your financial situation. 

Any debt relief system requires a bit of budgeting. As long as you follow your plan, have realistic goals and no intention of taking an easy and perhaps expensive way out, you should have no trouble budgeting. The other thing you should know is your credit score. There are a staggering amount of mistakes found on credit scores that result in people paying more interest than they should. If you are eligible for lower interest rates and 0% APR cards to move expensive high balances on to, not only should you be aware of this option ... You should definitely take advantage of it.

4. Minimize outgoings, Maximize income and leverage your cash flow. 

If you could be paying less for utilities and day to day expenses you should. Saving money is like a fine art, where you go through all of your expenses and find all of the places where you can trim the fat. This is something that you will become very good at if you’re going to crush your debt and not let your debt crush you. Home economics, consumer education and bargain hunting can save you incredible amounts of cash that can go toward paying off your debt a lot quicker. If you’re really serious about this, you can take it a step further and create a secondary or supplemental source of income. Be it a second job, or using a natural skill/strength you have that can use to earn money in your spare time. With the opportunities available online it’s never been easier to find those who are seeking out some knowledge, experience and skills that you have and that they will gladly pay you for it.

5. Form your system and put it into action. 

Having followed the first 4 steps and laid some sturdy foundations you are now in a position to develop a powerful ‘snowball’ plan. This would be a system that gains momentum as you execute it. This step is completely dependent on the first 4 steps and generating an extra figure that you can assign to snowballing your credit card debt. As the debts get paid off the figure grows and subsequently clears the rest of the debts a lot quicker. Additionally, this will save you a tidy amount of interest in the process. It is very possible to use a DIY plan and enjoy great success from it, yes it takes a bit of hard work and discipline on your part but the alternatives just cost you more and keep you in debt for longer.

Here's An Example Of The Debt Consolidation Trick And How You Can Flip It To Your Advantage

Let's say you have 10 credit cards ranging in balances from $500 to $5,000, totaling $12,000 in debt. The payments on these cards come to around $250 a month. A debt consolidation "expert" contacts you or vice verse and tells you that you can clear up your debts and lower your monthly obligations at the same time using the equity in your home. You currently have 8 years left on your mortgage at $600 monthly in payments. Total monthly obligations for mortgage and credit cards is approximately $850.

Here's the experts plan: Refinance your mortgage to a 15 year mortgage while at the same time paying off all of your credit cards. The new mortgage has a monthly payment of $500. In effect this has reduced your monthly obligations by $350. You may even get a lower interest rate by a point or so. The "expert" will tell you all of the ways in which this transaction will benefit you and save you money in the short term as it applies to your monthly obligations. "Keep in mind Mr./Mrs. Homeowner, you can do anything you like with the extra money left over after closing" ,say's the expert. Sounds good doesn't it? That's the little picture. Now let's look at the big picture.

What the "expert" does not tell you is this. Though it is required in some if not all states for the truth to be clearly and fully disclosed, it is usually glossed over as if it were not very important or, confusing language that is not clearly or easily understood is used. Truth is this, even though you have decreased the amount of your monthly obligations, you have gotten yourself into more debt. The "expert" charges a fee. It could be hundreds or it could be thousands of dollars. Usually the latter is the case. These fees, charges, expenses, and debts are all wrapped together and included in the new mortgage which of course has interest payments. This new mortgage is larger and lasts for a longer period of time. You will be paying interest on this larger amount for a new term of 15 years. This could cost you many thousands of dollars over the years before it is payed off. How does the "expert's" plan sound now?

Remember I said, "YOU SHOULD TAKE CONTROL..." Here's what you should do. Take the experts offer, but ignore the experts advice. One or two of those $350 monthly obligations payments that you are saving every month should be applied directly to your mortgage principal ... That's one or two extra payments to you mortgage a year. Some of these payments can even be subtracted from the extra proceeds from the closing. You will effectively reduce both the principle and term or your mortgage dramatically. You can actually reduce the term by as much as half ... Saving you many thousands of dollars in interest in the process. Additionally, you should consider cancelling those credit cards that you have paid off. Those cards now have full balances and it is quite tempting to go on a spending spree. Those credit lines are still open. In using them you will reverse the snowball effect of clearing the debt to a snowball effect of re-accumulating the debt. This is of little or no service to you.

NOTE: Though the numbers used are purely hypothetical they are realistic in some parts of the country. They are used primarily for illustrative purposes to give you an idea of the dynamics involved in such transactions.

It’s your money, it’s your life ... If you want to truly own them both then you have to take control ... Not give it over to someone else. Control or be controlled, the choice is yours.

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