How to Manage Debt

Almost everyone will deal with some form of debt at least once in their lives. For many, debt has been a near-constant presence, hanging over them like some unshakeable cloud and persistently hindering their financial progress.

Debt can keep you from meeting your savings goals, being able to buy a house, or having enough for retirement. If you want to get out of debt and stay there, there are a few basic steps that you can employ.

Note: If you’re in serious debt, you may want to seek the help of a debt counselor. Some colleges and businesses provide this service for free– take advantage of it! It may be a worthwhile investment to get some serious professional advice before you start tackling your debt.

Get a Clear Picture Of What You Owe

The first step to learning to manage debt: know your enemy! Start by taking a thorough inventory of everything you owe. Make a list. Write down…
How much you owe
Who you owe it to
The percentage of interest on that debt

Organize the list from the highest percentage of interest to the lowest. Those hefty interest rates are going to be the debts that you’ll want to tackle first. And be ready: they’ll be the hardest ones to check off your list, but they’re the most important!

Set Up A Plan For Making Payments to Not Just Manage Debt, But To Eliminate It

If you’re like most people, you’ve been making the minimum payments on your debts in order to keep them at bay, but you probably haven’t made any significant progress in paying them off. But now that you can clearly see what needs to be done in order to move forward financially, you’ll have a stronger chance of sticking to more significant payments on your debts.

This will likely include a pretty strict budget. Now’s the time to sit down and assess a few things. Take stock of…
How much you make in a month
How much you spend in a month
How much you need to spend in order to make the minimum payments on all your debts, plus–
How much you can afford to throw at your top debt payments in order to clear it as quickly as possible

Take a look at those numbers, and you’ll start to get an idea of the kind of budget you need to be working within. Examining what you spend and where you spend it will help you find small (or major) expenses that you can do without. You may have to cancel your cable if you want to get rid of that debt! But it’ll be so worth it to be free of those expensive monthly payments.

Just remember to think big picture whenever you have to make small scale budget decisions. Every penny helps and all that.

Tip: some people have an easier time of sticking to a budget when they plan it out week-by-week rather than monthly or quarterly. Find whatever works best for you!

Keep At It

Consistency is going to be key. It’ll be tempting to ease up on your increased debt payments when life throws speed bumps in your path. But it’ll benefit you most to stay consistent and dedicated instead.

So how are you going to handle pesky emergency expenses that creep up on you? Keep at your savings, even while you’re trying to pay off your debt.

It sounds hard, and it is. But consistency in setting aside money for savings is every bit as important as your mission to manage debt. If you stop putting money into your emergency fund as well as your retirement fund, you’ll increase the likelihood of having to stop chipping away at your debts. Which in turn increases the likelihood of your debt getting out of control again.

This makes it oh-so-important to keep at it!

Keep setting aside a percentage of each paycheck into your emergency and retirement funds
Keep setting aside a percentage of each paycheck into your debt repayment plans

By committing yourself to a percentage of each paycheck rather than a set dollar amount, it’ll naturally compensate for any changes in your income. So you don’t have to worry about being totally broke if you have to take some time off from work but still want to stick to your financial plan to manage debt AND keep saving!

Setting aside that percentage for savings as well as your debt will really help you stay on track better than if you put all your money into debt payments and delayed saving for rainy days.

Stay Out of Debt So That You Won’t Have to Manage Debt

Depending on how much you owe, it may be a while until you’re fully out of debt. But once you’re finally in the clear, you won’t have all that money going to your creditors anymore!
Now the goal is to stay out of debt. Because you probably never want to have to go through all that again, right?

The simplest trick to staying out of debt: staying organized.

If you’re able to keep track of your routine expenses… bills, mortgages, insurance, groceries, or whatever… you’ll stand a stronger chance of never forgetting to pay those expenses. There are a few basic tips to help you stay on track and avoid going back into debt:

Try setting up automatic withdrawal for things like bills, so you’re never late on a payment.
Build good credit history by always paying all your bills on time. A good credit score can seriously turn things around for you!
If you think automatic withdrawal from your main checking account could lead to overdrawing or bounced checks, it might be helpful to set up a separate bank account where you deposit the amount that you need for each month’s list of expenses and pull from there.
If you don’t trust yourself with a credit card, stay away from them! If you really need a credit card to build up your credit score, then stick with one that features a low APR and pay it off every week. Only use it for things like bill payments, etc. Remember: credit cards are one of the easiest debt traps for us all, so be careful.

If you want to do more than manage debt for the rest of your life, staying out of debt is going to be your best line of defense. Managing debt is hard work and it can feel like it takes forever… but the reward of debt-freedom is so sweet.