Debt Management Techniques

Control Your Spending

Managing your debt with or without a credit counseling service in your corner is usually a matter of faithfully following some simple principles - simple to understand, but difficult for many people to faithfully put into practice.

Make a budget

A budget is a written plan. An itemized summary of probable income and expenses for a given time period. Or, you might prefer to consider it as a way to keep from exhausting your money before you run out of month! Anyway, no matter how you refer to it, it's a tool to aid you in prioritizing your spending and manage your money-no matter how much or how little you have.

Cut costs

Cutting costs is something that more people should become familiar with in this day and age, if only to increase the savings rate. Cutting costs is a simple matter of looking at the excesses in life, identifying them for what they are and opting instead to save that money to have for emergencies or other situations of need. It can be as simple as turning off your computer when you are not using it to save on your electric bill, or riding your bike more rather than driving.

Sacrifice

Sacrifice is like cutting costs, but rather than eliminating things that you are already used to, sacrifice can also mean not picking up or buying things that you want. Sacrificing even a little will yield impressive results to your bottom line and your budget over time. If you are considering credit counseling services, cutting costs and sacrificing together can help you come up with a fair amount of extra money that you can put toward your debts yourself.

Eliminate Debt

Once you've learned to control your spending, eliminating debt should come naturally with the money you save. A common mistake many people make is to accumulate large savings while they are swimming in debt. Savings is good, no doubt about it, but if you have $5,000 in the bank and are paying interest on $3,000 in credit card debt, you are losing money far faster than you probably realize. You are probably better off cutting your savings for now and using it to eliminate your debt. Once the payments to those credit cards are gone you can immediately start putting them into savings instead and get your $5,000 back (and more) in no time.

Pay off debts smallest to largest

Paying off debts should be done methodically. One way that helps some people is to look at your smallest debt, like maybe a maxed-out $500 credit card that you pay the minimum balance to. If you take all of the extra money you have from cutting costs and sacrificing and put them with that credit payment, you will be able to see that debt disappear fairly quickly, giving a sense of accomplishment to encourage you to keep going. Take the minimum payment plus the extra you were making on that credit card and start paying your next highest debt. This is called a 'snowball' payment. Over time, your snowball will become large enough to finish off your final debts - the ones that seem largest and impossible to pay off - with very little effort at all.

Close excessive accounts and don't use them

Once you've used the snowball method to pay off your debts, you should close the ones you do not need. Having open accounts with no balance on them is not a boon to your credit score and only serves as extra temptation to get back into trouble again.