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    DIY Debt Consolidation - Is It For You?

    Did you know that you can create your own do-it-yourself plan for debt consolidation? This can help you to save fees rather than paying administration fees to banks and lending companies, and will mean you have tighter control over the process.

    Devising your own strategy is not easy and requires a great deal of forethought, but it is by no means impossible. There are several reasons why more individuals do not pursue this option. 

    Do Not Know The Option Exists: Many individuals are simply not aware that it is possible to construct your DIY debt consolidation plan.

    Unfamiliarity With Available Options: The number of tools available may surprise you. To devise a viable plan, it is necessary to be familiar with the available consolidation options.

    Procrastination: DIY debt consolidation requires you to sit down, look over your financial situation, and analyze your debt. Many people simply do not take the time to do this.

    The Toolbox - Your Various Options

    The purpose of debt consolidation is to leave you in a more financially manageable position than you were before. To accomplish this, a quality plan needs to be developed and in order to develop a quality plan, you need to know what tools are at your disposal.

    Going For A Bank Loan Or Online Loan: A consolidation loan from a bank or credit union is the most common solution sought by individuals. This type of loan is perfect for someone who has many high-interest debts.

    Let’s say you owe a total of $5,000 spread out over credit cards, medical bills, backed rent, and payday loans. With a consolidation loan, you would receive $5,000 to pay off all outstanding debts, leaving you with a single monthly payment at a (preferably) lower interest rate.

    Because consolidation loans are a type of unsecured debt, banks and credit unions often require you to have a good credit score to be eligible. Those who cannot secure a consolidation loan from traditional lenders may want to compare online lenders since lending criteria may differ.

    Always examine the terms of a loan closely. If the interest rate is not lower than existing debt than you’re not consolidating your debt, you are adding more.

    Credit Card Balance Consolidation

    Credit Card companies are in constant competition with one another. They want to hold your debt and will offer enticing promotions to attract customers. One such offer is a credit card balance transfer.

    For example, let's say you have two credit cards both with a limit of $3,000. One card carries a balance of $1,800 and the other a balance of $500. The bank or credit union that issued the card with a balance of $500 will likely offer you 6-months interest-free on the amount of the transferred balance. 

    In this case, the issuer will pay off the balance of the $1800 credit card and add it to the balance of the $500 card. You now have the opportunity to aggressively pay down $1800 worth of debt without incurring interest for 6 months.


    For homeowners, a home equity line of credit (HELOC) is another option worthy of exploration. Equity refers to the level of ownership you have in your home.

    Calculating equity can be handled as follows:

    Current Appraisal Value Of Home - Current Mortgage Balance = Equity

    A HELOC can be thought of as a second mortgage. Essentially, the lender will give you a line of credit based on the amount of equity you own in your home.

    This line of credit is revolving debt, meaning there is no fixed period required to pay off the loan and you can draw from it as much or as little as desired. 

    This line of credit can be used to consolidate your debts at a lower interest rate than credit cards and sometimes unsecured loans as well. 

    Borrow From Retirement

    Borrowing from your retirement with a 401k loan is a last resort option and should not be undergone unless all other options have been exhausted. A 401K is an employer-sponsored retirement fund.

    Every paycheck a specific tax-free sum is deducted and deposited into your 401K fund. In some cases, the employer even matches your contribution. 

    The interest rate is usually a percent or two above the prime rate, and there is a limit of either $50,000 or 50% of total 401K value, whichever is lesser.

    When you borrow against your 401K you have 5 years to pay the balance back or face large early withdrawal penalties. This period goes down to 60 days should you lose or change your job.

    Pros And Cons

    There are many pros and cons associated with DIY debt consolidation. Both the benefits and drawbacks need to be considered before you decide to go through with any DIY consolidation plan.


    • Single Payment At Lower Rate: Consolidation usually results in a single monthly payment at a lower interest rate than the consolidated debts held on their own.
    • Less Fees: Many debt counselors and specialists charge fees for their services. By thoroughly researching the options available, these fees can be avoided.
    • A Fresh Start On Debt: This strategy offers you a fresh start on debt and allows you to stop any damage to your credit history.


    • Overpaying To Consolidate: Debt consolidation specialists can often get slightly better rates than what you might access from a traditional bank or credit union
    • Potential For Future Failure: If you do not fix the root cause of your debt issues and poor money management, a DIY debt consolidation process can leave you in more trouble than when you started.


    DIY debt consolidation is an excellent option for those who are willing to take the time to investigate what options they have at their disposal. 

    The solution that most individuals end up deciding upon is an unsecured loan or line of credit. The unsecured option is preferable to equity-based loans because should you default on the loan there is nothing the creditor can take away from you.