This is the first in our Debt Management Series where we will provide in depth information about debt management. Over the next few weeks we will be discussing debt management – what is it? how does it work? what are the different debt management programs offered out there, how do they differ and much more. Today we are going to start at the beginning with what debt management is in general.
In it’s simplest form debt management is a strategy designed to help you, the debtor, manage your debt. This can be a strategy you create yourself to reduce your debts or can be implemented by an outside debt management company on your behalf in a more formal debt management arrangement, typically known as a debt management plan.
Whether you have a mortgage, line of credit, student loan or credit card debt, learning to properly manage your debt is the first step to ensuring that your debts do not balloon to more than you can handle or if they already have, getting them back under control. Proper debt management means paying your bills on time, having a plan to reduce your debt (whether on your own or with the help of a debt management plan). Poor debt management can lead to overdue bills, collection agency calls, repossession of your car or home or even a court judgement against you.
Healthy Debt Management
Whether you are trying to manage your debts on your own or are thinking of a more formal debt management plan, there are certain healthy principals that will ensure your debt management is successful.
PLAN. While it is also important to plan for future items including your children’s education and your retirement what we are talking about today is ensuring that you keep your debts under control. At a minimum plan for major purchases and emergency expenditures. Don’t rely on debt as a support mechanism for your everyday expenses or for emergency funds.
REVIEW YOUR BUDGET. Make a list of your monthly income, your monthly and periodic living expenses and your debt payments. Review your budget for any expense savings then determine how much you can generate towards debt repayment each month. Be realistic. Long term success of any debt management plan means having a workable plan at the start.
SET GOALS. If you already have debts, set some goals for getting them paid off. A good debt management plan (either with a credit counselling agency or on your own) will have a defined time period after which your debts will be eliminated or at least reduced to a level at which you consider appropriate for your circumstances. For example, your first goal may be to reduce all of your credit card and other unsecured debts to zero within three years, leaving only your mortgage which you will then have a second goal to reduce over a longer period. Make your goals realistic but be sure you understand exactly what those goals are and how you will achieve them.
MAKE YOUR PAYMENTS. If paying down your debt on your own, pay all your bills on time. Whenever possible make an extra payment. Paying down your debt faster will reduce your interest costs and get you out of debt sooner. If you can’t make a payment contact your creditors or a credit counsellor right away to make alternate arrangements.
Start Your Debt Management Today
We all use debt at one time or another. The key is to use it wisely. Good debt management is mostly about your own ability to focus on paying your bills on time and reducing your dependence on debt for everyday living. Credit should be used for convenience and planned purchases. Determine how much debt you are comfortable with and for what purpose. Typically, debt payments should not exceed 20% of your net income. Once you reduce your debts, keep them under control.
Get started today on building your healthy debt management skills. Develop a personal budget and begin to reduce your debt. If your household budgeting plan shows you have more debts than you can pay on your own, start learning about the different options for dealing with your debt.