This may come under the category of “pretty darn obvious” but the best debt management tip of all is to not get into debt in the first place. Debt can have a horrible impact on both your finances and your health. The stress generated by having to cope with debt can cause heart disease, indigestion, fiber myalgia, high blood pressure, arthritis, a spastic colon or migraines. If want to avoid this and get your debts under control here are 5 tips that can help
#1. Figure out how much you owe
This may also seem obvious but the best first step is to sit down and figure out exactly how much you owe and to whom. Don’t be one of those “see no evil” monkeys. You can’t hide from your debts so there’s no point in trying to ignore them. List your debts with the amount you owe, the name of the lender, the due date, the interest rate, the minimum monthly payment if appropriate and the last time you were able to make a payment. While the results of this exercise might scare you it’s absolutely necessary you do it.
#2. Determine your spending
The second best debt management tip is to sit down and figure out where your money goes. This could be as simple as drawing a vertical line down the middle of the page and then listing all your recurring expenses on the left side and your discretionary ones on the right. Your recurring expenses would include things such as your utilities, insurance premiums, rent or mortgage payment, auto loan payment, cell phone bill and the like. Your discretionary spending will consist of categories like food, clothing, entertainment, eating out, your cable bill (yes, that is a variable) and so forth.
Next, add up all your spending and compare it to your total monthly income. We’ll be shocked if don’t find you’re spending a lot more than you earn, as this is why you’re piling up debt.
#3. Budget your discretionary spending
Yes, here comes the B word. If you truly want to manage your debts you need to make a budget. This should be pretty easy. Since there is not much you can do about your recurring expenses all you need to budget is your discretionary spending. You already have a list of them so revisit that list and start making cuts. Some of the easiest places to make them are usually in entertainment, eating out, and clothing. If you really sharpen your pencil you might also be able to cut your food cost. The object of this exercise is to get your spending down to the point where you can start paying off your debts.
#4. Get some good help
The good news is that you don’t have to do this budgeting thing all by yourself. There are a number of free apps available that make budgeting practically painless. One of the most popular of these is Mint. It will track your spending for you, help you organize it into categories and even send you an alert via email if you overspend in any of them. Other popular budgeting tools include You Need A Budget (YNAB), GoodBudget and Mvelopes, which is a modern-day take on the old envelope method for budgeting.
#5. Create your plan
You can relax as you’ve done the hard work. All you need to do now is make a plan for paying off your debts. There are two ways to do this. First, there is the snowball method. This is where you go back and reorder your debts with the one that has the smallest balance at the top down to the one with the largest. You should find it easiest to pay off the one with the smallest balance so focus on it. When you’ve paid it off you will have extra money to begin paying off the one with the second smallest balance and so on. Of course, you will want to continue making at least the minimum payments on your other debts.
A second way to repay your debts is to reorder your list with the one that has the highest interest rate at the top down to the one with the lowest. Many experts feel this would be a better solution, as it would save you the most money – though it won’t get you out of debt as quickly as if you were to snowball them.
Regardless of which of these options you choose you need to commit to sticking to it. This will require some self-discipline but if you can do it you will ultimately be debt-free – and how good with that feel? Of course, while you’re sticking to that plan is crucial that you not take on any new debt. That will also require self-discipline but will be worth it when you’ve eliminated all your debts and now have money to spend on the fun things in life like a vacation in Hawaii, a cruise, a ski trip, that hobby you’ve always wanted to pursue or whatever it is that would make your life more enjoyable.