How To Set Up a Debt Management Plan

Debt is scary.

Setting up a debt management plan and sticking to it can be even more frightening to many people than carrying large amounts of debt. However, there are simple, time-tested methods that will help you to manage your debt and enjoy financial freedom.

First, spend less money than you make.  Yes, this is a simple concept, but it is not an easy task to accomplish.  If you do not take this step first in your debt management plan, then everything else will fall apart eventually.  Create a budget to see where your money goes on a monthly basis.

Next, make a list of your other debts.  You need to know the amount owed, minimum monthly payment, and the interest rate.  This is a critical part of setting up your debt management plan.  Pay special attention to the interest rates.

This step is optional, but can be very helpful.  Now that you spend less money than you make and you know how much you owe, a debt consolidation loan can help you get out of debt faster.  Do not get a debt management loan before you control your spending habits. Otherwise, you will be putting a bandage on your financial problem instead of solving the underlying issue.

Whether you get a debt management loan or not, this next step in the management plan is crucial.  Pay the minimum payments on all debts except the one with the highest interest rate.  Spend any leftover money on paying this debt down as quickly as possible.  This will save you more money over time.

When the debt with the highest interest rate is paid down, then use that payment to add to the debt with the next highest rate.  Continue this process until your debt is managed.

If there are multiple debts with the same interest rate, then attack the one with the highest remaining balance.

When you set up a debt management plan, remember that you are in control of your money - not the other way around.  You must decide how serious you are and how much you can allocate toward the debt management plan on a monthly basis.

Don't worry if you slip occasionally; it happens to everyone.  What is important is that when you set up your debt management plan, you stick to it religiously and make it a part of your lifestyle forever.

In summary: spend less, identify your debt, get a debt consolidation loan, attack highest debt first, and repeat this process until your debt has been managed.