The DIY Approach to Cutting Credit Card Debt

Credit counseling, debt management plans, debt settlement programs, and credit consolidation loans are used by people who want to reduce or eliminate debt. However, the do-it-yourself (DIY) approach works well for a surprising percentage of people, as long as they have the commitment and discipline necessary to do it. The advantage of conquering debt yourself is that there is no middleman between you and your creditors. You don't have to meet with loan officers or credit counselors. You don't have to open up your finances to a stranger. And you don't have to pay the fees associated with many of these programs.

Who Should Try the DIY Approach?

Anyone who wants to cut or eliminate debt, but who is not in immediate danger of default or bankruptcy should consider a DIY approach to managing their debts. Consumers who have the best chances to succeed with a DIY approach are:

• Those who are able to pay more than the monthly minimum payments
• Those with good to excellent credit
• Those with steady incomes

However, the following people should probably seek professional help instead:

• Those who cannot meet minimum monthly payments
• People who use one credit card to make payments on another card
• People who have to use credit cards in order to pay basic bills or buy food

What are Balance Transfers?

People with good to excellent credit are often eligible for credit cards with 0% balance transfer periods, and some of these 0% periods last for a year or more. These cards charge a fee to transfer balances to the card. But by paying off the balance before the 0% balance transfer period ends, consumers can save hundreds of dollars in interest. It is important to pay off the balance before the 0% period ends, because afterwards interest rates jump to 16% on average. It is also important to avoid using the card for new purchases. New charges only mean more debt, and sometimes interest rates on purchases are not 0%, so new interest can add up quickly.

Negotiating with Creditors

People with good to excellent credit who have a good track record with their credit card issuers for paying on time and not exceeding credit limits may have a decent chance of getting a lower interest rate just by asking. Banks and other credit card issuers spend around $300 for each new cardholder they obtain. Most would rather lower interest rates for good customers than lose those customers and have to spend money to acquire new ones.

When to Give up on the DIY Approach

Sometimes, the DIY approach to conquering credit card debt is not enough. Perhaps a surprise car repair or medical expense throws off a disciplined payment plan or job loss cuts family income. When this happens, it's best to pursue other debt management options. Credit counselors can help get debt management back on track again, and sometimes they are able to negotiate lower interest rates or lower monthly payments when consumers are unable to do so directly. The worst approach is to ignore debt problems. Debt problems are never solved through neglect.

Sources:

http://www.creditcards.com/credit-card-news/help/8-myths-settling-credit-card-debt-6000.php
http://lifehacker.com/5173432/reduce-your-debt-with-a-diy-balance-transfer
http://blog.creditkarma.com/credit-cards/do-it-yourself-credit-card-debt-consolidation/
http://www.creditcards.com/credit-card-news/help/step-by-step-credit-card-debt-negotiation-6000.php