There are tons of debt management tips and most of them represent good advice. For example, one of the debt management tips you’ll see over and over is the importance of budgeting. And there is no question that developing a budget can be a good step towards better debt management. But let’s face it. Budgeting isn’t for everyone. There is a whole platoon of budgeting apps and software programs that make it pretty simple but they all demand a certain amount of self-discipline.
As an example of this, the very popular Mint.com promises to track your spending for you but you must link it to your checking account and all of your credit cards. If you pay cash for things you must remember to write it all down and then add the information to your account. If you add a new credit card and forget to link it to Mint you won’t be tracking all of your spending. Mint will also organize your spending in the categories but it can’t keep you from overspending.
Best debt management tip #1
One of the best debt management tips is to put away your credit cards and pay cash for everything. The reason for this is a bit of psychology. When you use cash for all of your discretionary spending you’ll end up spending less, as it’s just much harder to pull money out of your wallet to pay for something than to swipe that little piece of plastic. And, of course, it totally eliminates the possibility of adding on debt.
What you will need to do is make a list of what you typically spend in two weeks. This would include eating out, clothing, transportation, entertainment and anything else that doesn’t require a fixed payment every month. Add up that spending and then next Sunday go to your nearest bank ATM and take out that much money in cash.
What do you do if you run out of cash before your next two-week period? It’s really best to not do this because if you do you’ll either have to quit spending money altogether – which might not be a really bad thing – or you’ll have to get out that little piece of plastic, which would be a really bad thing.
Best debt management tip #2
This may seem elementary but if you pare down your debt payments to just one or two you’ll find it much easier to manage them. There are two ways to consolidate debts that are worth considering. The first is if you have multiple student loan debts to multiple loan servicers you could consolidate them with a Federal Direct Consolidation Loan. The interest rate you will be charged on that loan will be the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent.
A simpler explanation is that your new interest rate will be higher than the lowest interest rate you’re currently paying but lower than the highest. In addition to getting a lower interest rate – probably – you’ll still be eligible for all the various federal repayment plans including the new REPAYE program or Pay As You Earn Revised.
Consolidate your credit card debts
If you have multiple credit card debts you could consolidate them with a balance transfer. There is now any number of 0% interest balance transfer cards available. If you were able to qualify for one you would then not only have just one payment a month it should be for less than the total of the payments you’re currently making or a definite win-win. The one thing to be careful about these cards is that once your introductory period ends your interest rate could skyrocket to something like 19%. If you’re not sure you’ll be able to completely pay off your balance before your introductory period ends it would be better to transfer those balances to a new card that just has a lower rate.
Best debt management tip #3
If there is some reason why you can’t consolidate your credit card debts at least prioritize your payments. The financial expert Dave Ramsey is big on what he calls the snowball method for paying off debts. This is where you order your debts from the one with the lowest balance down to the one with the biggest. You focus all of your efforts on paying down that first debt with the lowest balance, as it should go quickest. When you have it paid off you will then have extra money to begin paying down the debt with the second lowest balance and so on. Of course, while you’re doing this you need continue making at least the minimum payments on your other debts.
A second way to prioritize is to order your debts from the one with the highest interest rate down to the one with the lowest. There are experts who favor this approach because it will save you the most money – though you won’t get out of debt as quickly as if you were to snowball your debts.
Best debt management tip #4
If you are feeling totally overwhelmed by your debts, go get some help. A credit-counseling agency could help you formulate a plan for getting your debts under control. Your credit counselor will negotiate with your creditors to get your interest rates reduced and have late fees and other penalties waived. The credit-counseling agency will then serve as your consolidator collecting one payment a month from you and then distributing the money to your creditors.