Debt Management Tips

Getting out of debt is much harder than getting into it. That's a fact. Getting rid of loan and credit card debt requires sacrifice and consistent effort. This article will give a few tips on how this can be done.

Calculate Total Debt

As part of the plan to become debt free, it is important to calculate the exact amount of debt that needs to be repaid. Use this total figure to work out a payment plan. Once the figure is ascertained, borrowers can either develop a debt solution individually or seek help from a professional company.

Going it alone calls for self motivation and stamina to stay the course. Using a management service, however, could be more suitable as support and counseling is usually provided. Applicants should express caution when choosing a debt management company as not all companies are legitimate.

Draw up a Debt Management Plan

Draw up a plan based on the type of debt (credit card debt, store cards, or loans) and rank the debts in order of cost. The interest rate on each type will differ and part of the plan should be to repay the debt with the highest interest rate first. This would free up cash to pay towards the next debt on the list and so on.

Once a plan is in place, then the spending must stop. The idea is to repay all debts, not replace it with additional ones. Reducing spending may call for drastic action such as cutting up all credit or store cards, but achieving a debt free status will be worth it.

Change Spending Habits

The approach to spending should be considered as part of the debt management plan. A few statements of action should be drawn up to tackle spending habits. Examples could be as follows:

• Determine the amount of money to take on shopping trips

• Do not spend what cannot be repaid in 30 days

• Do not purchase on credit; pay with cash or debit card only

• Set a monthly shopping and leisure budget and stick to it

Setting a plan in place now could save the embarrassment of having debt collection services calling in the future. Debt problems do not have to be overwhelming. It takes a few firm decisions and guided actions, but if done correctly, the end result will be a debt free status.

When all the normal steps to get rid of debt haven't worked or aren't available, declaring personal bankruptcy may be the only way to tackle serious debt problems. However, before filing bankruptcy there are a number of important steps that need to be taken. Since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act 2005, getting out of debt could potentially be more difficult for some people than others.

Before filing for bankruptcy, it is important to seek advice and guidance from a qualified credit counselor as it may be possible to bridge any income gap through better budgeting. Also, a debt settlement program provides a viable bankruptcy alternative if some disposable income is available to offer creditors. Getting out of debt is achieved through a general debt reduction and a monthly payment to creditors over a period of up to 36 months. However, it isn't legally binding so the debtor will not be afforded the same court protection. Getting out of debt through bankruptcy is often advertised as providing a 'fresh start,' but it remains a very stressful time for families. While it can be possible to pay off the debt in just 4 months, many people delay filing for too long. It is necessary to have a one-hour credit counseling session through a U.S. Department of Justice approved agency; the cost is normally just $50. Hiring a bankruptcy attorney will also cost $2,000 to $3,000 so there are a number of important financial considerations.