Tips for Creating a Debt Management Plan
Getting into debt is quite an easy and quick process: you can get almost as many loans as you want, you can use them for various reasons, and you might realize that you are in trouble only when it comes to repay the loans. In addition to the several loan types you can get, you probably have at least one credit card, and in case you use it too often, it might lead to credit card debt. What can you do to make your situation better in a relatively short period of time? Is there a way to repay your debts quickly? If you are not buried deeply in debt, a debt management plan or a debt management case study can help you a lot, but you have to pay attention, your plan should be effective, otherwise it worth nothing.
The first question usually refers to what a debt management plan is? Although it might sound strange, this is just a simple plan which you make to show how you plan to repay your debts. There are two types of debt management plan: the first type is for home use only, meaning that you will not show the plan to your credits, it is made only to help you prioritize your debts; while the second type is a plan which you show your creditors, and in case they accept it, the plan leads to an informal agreement. There might not be any differences between the two plans, since there is no exact criterion how the plan has to be made. The main idea of a debt management plan is to contain a few very important features: the exact amount of your income, the money you need for daily expenses, the exact amount of your debts with interest rates. These are the very important fact which should be stated in a debt management plan, whether made only for home use or for other purposes. Although you already know in big lines how to create a debt management plan, there are a few tricks which help your plan to be more effective.
When you start making your debt management plan it is important to calculate your exact monthly income. When you do the math, you should consider only your net income, because only that counts when it comes to spend the money. After you have reached the final number, try to make a list with your expenses. Here you should consider everything: from your grocery shopping to your cable prescription. This means that you should try to calculate your expenses as exactly as you can, because now every small amount matters. You should include in this list the minimum payments of your debts, doing this will help you in not getting in trouble with your creditors, because until you pay the minimum required amounts, your creditors will be contempt. When both of your lists are done, you should subtract the total of your expenses from the total amount of your income. The remaining amount should be used to repay your debts. In many cases the remaining amount of money is very small, and if this happened in your case, you should
consider a few changes in your life.
People have debt issues usually because they spend more than they earn, and only realize it when they are late with their payments. All this becomes clear when they have a debt management plan in their hands, and they can see the exact figures. What can you do to change the situation? There are a few measures you can take, although some of them might seem a little rough at first, they will help you get out of debt in quite a short period of time, so it is really worth trying! If the difference between your income and expenses is too small to make a difference in terms of loan repayment, you should try some of the following: check your list again and cross anything you do not really need. This might involve changing your cable subscription to basic, cooking at home instead of eating out every day, using only one credit card instead of two (but preferably you should not use any credit cards during this period), going to work by bus and not by car, and the list could continue. These measures can scare you at first, but if you do the math, you will see how much you can save by cutting down your expenses. When you had decided on your new and cut-back expenses, you should calculate again how much money you have for loan repayments. You will see that changing your lifestyle means more money in your pocket so you will be able to lead a debt free life sooner than you imagined.
Since you had calculated the monthly minimum payments for all your debts when you made your debt management plan, now you have an extra amount you can spend on the loan which has the highest amount to interest ratio. Use all your extra money to repay this loan soon, because you will save quite a big amount on interest rates. When you managed to repay one loan, treat yourself and celebrate: eat out, watch a movie; these will help you realize that you had passed a milestone, and you are capable to repay all your loans like this one. When your first loan is repaid, redo your plan, and once again start making extra payments for the debt with the highest amount to income ratio
. This means that you can start repaying your unsecured loans first, because they have higher interest rates than secured ones. In a few months (depending on the number of your loans and the total amount you owe) you will become debt free!
Making a good debt management plan is quite easy; almost everyone can do it alone, without any professional help. The hardest part is to stick to the plan; otherwise they will have to deal with even more serious debt issues. A debt management plan is the start on your way to becoming debt free, so you should follow your plan, but celebrate every time you reach a milestone. Keep in mind that getting out of debt requires hard work, but it is possible. And if you change your lifestyle a little, you will never get into debt again! Good luck!