Debt Management: Creating a Plan to Manage Debt in Any Environment

For a plethora of reasons, many Americans suddenly find themselves under a mountain of debt. This is particularly common in the midst of the worst economic environment in decades and seemingly never-ending job losses. Although it's understandable, it is neither acceptable nor unmanageable. Some consumers should have seen it coming well in advance as they purchased luxury item after luxury item. Yet in many cases, those who were diligent in their budget management still find themselves struggling with a growing pile of debt. However, all is not lost. With a bit of effort, that debt, no matter how large, can be eliminated.

Creating a Budget

When undertaking the task of managing debt, it is important to understand that some types of debt are perfectly acceptable, while shoppers should avoid other debts entirely. In most instances, mortgages, auto loans, and student loans are all reasonable debts to take on assuming they fall within a well-constructed budget management plan. However, credit card debt and frivolous spending are never good ideas when trying to maintain financial freedom. The first step to take toward successful debt management is to create a budget. This can be an arduous task, but it is imperative. Every dollar coming in and every dollar going out must be counted. Until that happens, debt will likely continue to rise. Credit card statements, utilities, and even cash transactions must be documented. During the budget management process, unnecessary expenditures are likely to surface quickly. These can be eliminated and the money saved put toward debt reduction.

Lowering Debt

Once the budget is in place, it's time to begin the process of eliminating those costly expenses. It is helpful to organize debts according to their interest rate. The key is to pay off the higher interest loans first; this will likely involve several credit cards. Contact credit card companies and inquire about transferring balances to cards with lower rates. Paying down debt will seem like a sacrifice, but it is worthwhile. Dining in is often more enjoyable and healthier than eating out. Plan trips to the grocery store rather than the shoe store. Movie theaters are too crowded and not nearly as comfortable as home. The money saved from skipping a few so-called luxuries will make life much more relaxing as it is used to pay off those annoying loan balances.

Beware of Debt Consolidation Schemes

Unfortunately, debt consolidation companies are always clamoring for consumers struggling to pay off their bills. They sell the promise of one low monthly payment. Unfortunately, it will take forever to pay down the loan and participants end up paying much more in the long run after the additional interest payments and other fees are factored in.

Living Debt Free

Now that the debt is gone, or at least manageable, ensure that it doesn't begin to grow again. A good idea is to set up automated accounts and have money directly deposited into savings and retirement accounts. If the money is not there, it is not likely to be spent. And, to ensure the money spent is not greater than the money coming in, save credit cards for emergencies only.