Since the financial crisis in 2008, many people have found that they have had to deal with periods of unemployment or that their wages have stagnated while the prices of goods and services have continued to rise. Others might have faced unexpected medical expenses that were not covered by insurance. Needless to say, any of these circumstances can lead to people incurring a heavy debt burden, which can be challenging to manage. By making and following a debt management plan, it is possible to get debt under control and paid off so that you have a sense of financial security.
Here are nine essential debt management tips to help you become free of debt:
# 1
Make a Budget and Stick to It. Start by listing all sources of income that people receive in the household. The next step is to list all fixed expenses, such as mortgage or rent payments, car payments, and insurance. Then, you will need to list all expenses that vary from month to month, such as utility bills and groceries. Finally, you need to list all loan and credit card payments that you need to make each month. Hopefully, you will have sufficient income to over your expenses. If you do not have sufficient income, explore ways that you can decrease some of your bills. For example, see if you can find ways to cut your electricity bill or save money on your grocery bill by using coupons. Another option is to see if a member of your family can get a part time job or find a way to make some money online. Once you have finalized your budget, make sure to review it each week to make sure you are staying on track.
#2
Designate a certain amount of money to pay off debt each month. When making your budget, it is essential to set aside enough money to pay both the minimum required payment each month, plus additional funds to pay more on one or more bills or loan payments.
#3
Rank your credit card and loan payments according to the interest payments and fees on the accounts. If any of your credit lines are over the credit limit, you will need to pay down the balance so you are not charged over limit fees. The next priority is to pay off the credit card or loan balance that has the highest interest rate. After you have paid off one card, move to the next one on the list, until they are all paid in full.
#4
Avoid using credit cards while you are trying to pay down your debt. Many people have developed the habit of reaching into their wallet for the most convenient piece of plastic they have. If you prefer not to carry cash or to use checks, use a debit card associated with your checking account, but you will need to remember to stay within your budget.
# 5
Keep lines of credit open even after you have paid them off. While it is tempting to close an account that you have paid in full, you need to keep the line of credit open so you have a favorable credit utilization ratio, which is part of your credit rating.
# 6
Try to negotiate with your creditors. While it might seem intimidating, many people have found they can reduce the interest rates on their credit cards by negotiating with their creditors. It is essential to stay calm and patient, while realizing you might have to speak to several supervisors before you get results.
#7
Make an effort to set aside money each month for an emergency fund. Even though it is difficult to save money while you are trying to pay down your debt, putting aside even a small amount each month can add up to a substantial amount by the end of the year. Ideally, an emergency fund should have enough money to cover three to six months of living expenses so you are covered in case you become unemployed or are unable to work due to an illness or injury.
# 8
Do not use one credit card to pay other cards. When some people get into financial difficulty, they will use one credit card to pay off another credit card. While this might stop collection activity for a bit, you are not doing anything to get yourself out of debt. If you find you are overwhelmed with the number of bills that you have to pay each month, check to see if you qualify for a debt consolidation loan. This will enable you to pay off your bills with the loan proceeds so you are left with just one bill to pay.
#9
If you find you are overwhelmed, seek the services of a credit counselor. Credit counseling agencies are non-profit agencies that will work with consumers and their creditors to resolve debt problems. Often the credit counselor can negotiate payment plans with creditors so that it is easier for the consumer to pay their monthly bill. Beware of companies alleging to offer credit-counseling services, but require an upfront fee for their services. It is likely that they are not legitimate.
While it takes a great deal of work to get out of debt and to stay out of debt, the sense of financial freedom makes your effort well works it.
