Get started with debt management today
Photo: flickr via 16181308@N08
Getting in to debt can be easy. Debt can pile up quickly, no matter where it comes from – student loans, personal loans, credit cards, or a mortgage. More than just clearing up your debt, a complete debt management strategy also encompasses managing your money. It is easy to take on tasks even this large when you break it down into small steps. Taken one at a time or together, these seven steps help you begin managing your debt.
1- Know what your income is
First, plan out how much income you expect to have over the next week, month, and year. Be realistic about your income, especially if you work variable hours or have variable income. Ballpark estimates can be used, but use a low number so you have a bit of room to wiggle. Be realistic about the income you can expect.
2- Know what you owe
Expenses come in two major types – fixed and flexible. Fixed expenses are the bills you know will be coming each month, and you know how much they are. A few examples of fixed expenses are rent payments, electricity bills, and phone bills. Flexible expenses are the costs that you pay occasionally. Purchases that must be made only occasionally, such as new clothing, are considered a flexible expense. Estimate your flexible expenses and add up your total fixed expenses.
3-Author a budget
Once you know your income and expenses, sit down and put together a budget. Determine how much of each paycheck goes towards which bills you have. Lay out what cash you have to pay off debt. Put aside some money for savings, even if it is a little.
4- Make a decision about which debt takes priority
There are multiple styles of debt. Each form of debt has a unique interest rate – a unique cost. When you’re paying interest, you are paying the cost of buying money. Your highest-interest debt should be prioritized first. By settling the debt with the highest interest rate, you are saving yourself bucks.
5- Construct savings
Paying off your debt is important. Building up a cushion of savings is just as essential. Build a reserve of cash that will cover between two and six months worth of expenses. If something unexpected were to happen, keeping a cash reserve will keep you protected.
6- Understand your rights and responsibilities
Aggressiveness is a tactic often used by those responsible for collecting debt. Make sure to know what legal rights you have, even when you are in debt. Begin informing yourself by checking out the FTC and Fair Debt Collection Practices Act. You have rights, no matter how much you owe. Debt collectors are not allowed to intimidate, bully, or treat you unfairly.
7- Maintain good practices
Stay in the habit of keeping track of your money. When you stick to your plan, it is possible to pay off debt. Slow and steady is the best plan – keep yourself in the habit.
