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debt management plan

How to Manage Your Debt

Dealing with debt is difficult. When you have a large amount of debt, it can sometimes seem like there are no answers. Bills start to pile up and you might even start getting calls from creditors or collection agents. If this happens, it can start to feel hopeless. The good news is that there are ways to manage debt and improve your financial situation.

Set Realistic Goals

Before you start modifying your budget or attempting to pay down your debt, you’ll want to make sure you take a realistic look at your financial situation and set some goals that you could potentially accomplish. Most people cannot pay off all of their debt quickly, especially those who have significant debt loads.

That’s why you’ll need to set goals. Take a look at your finances. How much do you earn? How much debt do you have? What are your monthly expenses? Use this information to create a budget with some realistic debt reduction goals.

It often helps to break down your large goals into smaller ones with frequent deadlines. For instance, instead of saying you want to pay off $10,000 of debt in two years, focus on a smaller goal first, such as putting an extra $400 towards your debt in one month. If that goal doesn’t seem realistic to you, focus on something smaller, such as putting $100 dollars extra towards debt repayment. Setting small realistic goals will keep you motivated.

Have a Plan

There are different ways to pay off and manage debt. One method is called the “avalanche method.” It involves focusing on the debt with the highest interest rate and paying off this debt as quickly as you can, while making minimum payments on your other debts. The advantage of this plan is that it saves you money by getting rid of your high-interest rate debt first.

Another option is known as the “snowball method.” With this plan, you focus on the debt with the lowest balance. This should be the easiest and the quickest to pay off first and accomplishing this goal will keep you motivated to keep going.

Whatever method you choose, make sure you have a plan and that you stick to it.

Stop Adding on New Debt

It’s incredibly difficult to manage debt when you keep adding on new debt. The solution here is to stop using credit cards and to live on cash as much as possible. To do this, you’ll need to have a detailed budget and stick to it very closely. When you’re living off only cash, the possibility of running out of money before you pay off of your monthly expenses does exist. So, you’ll need to be very careful with your spending. However, if you can do this, you’ll make managing debt more possible.

Track your Spending

It’s incredibly tough to stick to a budget and achieve your financial goals if you’re not tracking your spending. If you’re not keeping track of what you spend and how you spend it, it’s very easy to spend more than you have and get into trouble. Come up with a tracking solution that works for you and make sure you track every purchase, even the very small ones. These costs add up.

Plan for Irregular Spending and Emergencies

One reason many people get into debt trouble (and have difficulty getting out) is because they haven’t properly planned for irregular spending and emergencies. For instance, some expenses only come up once a year (birthdays, anniversaries, back-to-school shopping, holidays, etc.) so a lot of people don’t include these expenses in their budget. That could mean getting into debt trouble when it’s time to spend money on these occasions.

While special occasions don’t happen every month, you should figure out how much you’re planning to spend on them and then put some money aside each month. This will ensure that you don’t wind up getting into even more debt when the time comes to spend.

The same is true for emergencies. If your car breaks down or you are unable to work for some time, you could end up in serious financial trouble. That’s why it’s important to put some money into an emergency fund each month. If you do this, you won’t have to take on more debt when something unexpected happens, which will make managing your existing debt easier.