Debt Management

In this turbulent economy, more Americans are facing the challenge of being in debt.  For many Americans, that debt is often in the tens of thousands of dollars.  If you find yourself in the same or similar situation, it’s important for you to work on a debt management plan that will enable you to avoid adding to your debt, while at the same time working to reduce that debt until you finally eliminate it.

It’s important to realize that you very likely did not amass this mountain of debt overnight, and you are not going to eliminate this debt overnight either.  That is why establishing an effective debt management plan is essential to eliminating the debt as quickly as possible so that you can establish a more secure financial future for yourself.

The first step you should take in your debt management plan is to evaluate where exactly in your budget you overspent.  At least part of your overspending was likely on items that you didn’t really need, such as extra shoes, clothing, electronics, dining out, etc.  You need to identify exactly what you were overspending on and take steps to either eliminate or greatly reduce those costs.

The second step in your debt management plan is that you must establish a budget for which you cover your necessary (i.e. non-discretionary) expenses and spend little to nothing on any extraneous (i.e. discretionary) expenses.  If you don’t formulate a budget  and commit to it, your debt management plan will never succeed in removing you from your debt.

The third step in your debt management plan is to identify exactly why you overspent your budget in the first place.  Were you suffering from depression and did this to make you feel better, were you just out-of-control with your spending and unaware of how much you were actually spending, or was there another reason why you overspent your budget?

You need to evaluate all areas of your spending and modify them to make sure they don’t cost more than what you’re making.  You need to take into account all of the following costs in your debt management plan:

- Housing
- Transportation
- Debt
- Food
- Insurance
- Prescriptions
- Clothing
- Doctor Appointments
- Dentist Appointments
- Investments
- Savings
- Etc.

If you are overspending your budget in an attempt to live a lifestyle to impress other people, you need to stop doing that immediately.  This is the reason why the saying, “Living within your means,” is a commonly-used phrase.  You cannot afford to impress anyone with living a type of lifestyle that you have no realistic chance of maintaining based on the current income you are bringing in.  Without admitting this and making changes, your debt management plan has no chance of succeeding in bringing you out of debt.

If you have any extra income left over after accounting for all of the costs mentioned above, you should use it on high interest-bearing accounts, such as credit cards.  Your best bet is to throw all of your extra income on just one credit card account at a time until you pay it off, then move onto the next high interest-bearing account.  This will allow you to eliminate a portion of your overall total debt faster than if you divide the extra income up to go toward several accounts at once.

If you receive an extra source of money, such as from a tax refund or work bonus, you should also apply this toward your debt in the same manner as mentioned above.  Any extra income you can apply toward your debt will help you eliminate your total debt faster and allow your debt management plan to bring you out of debt sooner.

It is important to always keep track of your budget, including adding into your budget any extra income and extra expenses that develop over time.  You cannot afford to be unaware of any expenses, as this likely was a main reason why you amassed a sizable amount of debt in the first place.

Consider ways to increase your income, especially if you are having a hard time covering all of your necessary expenses with your current income.  Your options include taking on a second job and/or selling off unnecessary items that are in your possession.  Don’t forget to consider the Internet for possible sources of additional income, including the following activities:

- Selling items on eBay
- Taking surveys for cash
- Promoting other products for other people (a.k.a. affiliate marketing)
- Writing articles or blog posts for other people via sites that hire workers online (i.e. Freelancer.com, Elance.com, etc.)

Finally, make sure to limit your use of credit cards as much as possible while implementing your debt management plan.  You should only use a credit card if you have an unexpected emergency expense that must be dealt with and you have no other way of paying for it.  Otherwise, credit card use should be off-limits as you attempt to work your way out of debt.

Finding yourself under a mountain of debt can be an overwhelming experience.  It’s important to keep in mind that the mountain of debt didn’t occur overnight, so it’s going to take a while to totally get out from under that debt as well.  It’s also important to keep in mind that you do have the power to get out from under that debt, but will only succeed if you follow a sound debt management plan and are disciplined enough to stick with it until your debt is eliminated.