Large amounts of debt can be completely overwhelming. Having a financial burden that is not being properly managed interferes with health and financial goals. Following these five steps toward debt management can dig you out from crippling debt.
- Budgeting
The only way to begin debt management is by making an accurate and realistic budget for your household. This budget should include living expenses such as housing, food, bills, and transportation, in addition to savings, payments on debt, and a little bit extra each month. Having a budget like this makes developing a debt management plan easier.
- Cutting Back
The first stage in debt management is to stop acquiring new debt. Stop using high interest credit cards and signing new loans. This will reduce costs and make debt management much easier.
- Eliminating High-Interest Debt
The next stage is to start to pay off high-interest debts. These are typically credit card debts or similar forms of quick credit. This debt can pile up very quickly until you end up paying much more than you initially spent.
- Paying More
Wherever possible, you should always pay more than the minimum amount on all debt. Though some loans, such as some mortgages and student loans, don't allow you to pay more than the minimum, it is always wise to avoid the minimum monthly payment. When paying this minimal amount, it can be nearly impossible to pay off all your debt, due to the constant rising levels of compound interest. Paying a little more than the minimum payments on all debts makes it much easier to achieve the goal of financial freedom.
- Disciplining Yourself
The key to true debt management is discipline. Rather than taking out further debt and spending money that is not there, living frugally and within your means will ensure long term financial independence in the face of increasing debt. By following these steps, you can secure a future free of burdensome debt.
