One of the trickiest aspects of debt is there’s no single foolproof way to get rid of it. There are just as many ways to get out of debt as there are to get into it, so no two people will have the exact same financial journey.
Here’s one of the major questions you’ll have to ask along the way: Can you get out of debt on your own, or should you get help? There are pros and cons to both approaches, of course.
Here are some considerations meant to help you evaluate whether do-it-yourself (DIY) debt repayment is enough for you, or whether you’re better off pursuing a more structured debt relief strategy.
You Might Like DIY Debt Relief If…
DIY debt elimination may be the best option for you if a combination of budgeting and changing your spending behaviors would be enough to lift you out of debt within a few years. This path is especially helpful for people who have wiggle room in their budgets — the money for repayment is there, it just requires reallocation from non-essential expenses to debts.
According to NerdWallet, people with a debt-to-income (DTI) ratio lower than 15 percent can most likely use a DIY approach, as the snowball or avalanche methods. Divide your total monthly debt payments by your gross monthly income to find your DTI ratio.
Snowballing your debts means repaying your smallest balance most aggressively while making minimum payments on all the rest. As each balance is paid off, you move up the line in order of balance until finally, you’re ready to vanquish the largest. This strategy tends to help its users stay motivated and engaged by getting a few quick wins under their belts.
Avalanching your debts means aggressively repaying your balances from the highest interest rate to the lowest, remembering to make minimum payments each month on every balance. This strategy is designed to be the least costly overall because high-interest balances get eliminated early on.
While there’s no single correct answer to the question of how to get out of debt, having a focused strategy — rather than making random payments across a variety of debts — tends to simplify the process and help build momentum. Whether you opt for the motivational snowball method or the efficient avalanche method, make sure you stick to it until you repay every outstanding debt.
When You Might Need Help with Your Debt
What if your DTI exceeds 15 percent? According to NerdWallet, a DTI between 15 and 39 percent may necessitate a debt management plan through a credit counseling agency, or another form of debt consolidation. If your DTI is inching closer to 40 percent — or is already higher — then you may want to look into a debt relief strategy like settlement, or even bankruptcy.
You may be understandably hesitant to seek out help with your debts, especially because strategies like debt management, consolidation, and settlement can easily take three to five years to complete. That’s why it’s a good first step to meet with a credit counselor at a non-profit agency. The first meeting is typically free, and these professionals are qualified to give personalized budgeting and debt advice. You’ll walk out of the meeting with a clearer understanding of your options, as well as a plan for the longer term.
Should you get help with your debt, or can you handle it on your own? That’s up to you to decide but figuring out where your DTI falls is a helpful first step.